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SOUECE BOOK IN ECONOMICS 



SOURCE BOOK IN 
ECONOMICS 



SELECTED AND EDITED FOR 
THE USE OF COLLEGE CLASSES 



BY 



FRANK A. FETTER, PH. D., LL. D. 

PROFESSOR OP ECONOMICS IN PRINCETON UNIVERSITY 

Author of "The Principles of Economics" 




NEW YORK 

THE CENTURY CO. 

1913 






Copyright, 1912, by 
The Century Co. 






Al^Jc^flOfi^-J^''*^ 



CONTENTS 

PAQB 

I Markets and Prices. 

1. Origin of exchange — Herbert Spencer 3 

2. Origin of markets and market prices — Henry C. 

Maine 8 

3. Odd prices and bargains in retail trade — Eobert C. 

Brooks 15 

4. Some seasonal price-variations — Henry C. Taylor . 25 

5. Marketing of farm products — Frank Andrews . . 34 

6. Farm products and consumers' prices — Secretary 

Wilson 48 

7. An unsalable food surplus — The New York Times . 58 

II Wealth and Its Uses. 

8. Rentals of urban real estate — Eichard M. Hurd . . 61 

9. Housing and rents in American towns — British Board 

of Trade 68 

10. The farmer's woodlot — George F. Warren .... 75 

11. Hauling from farms to shipping points — U. S. Depart- 

ment of Agriculture 81 

12. Land from the waters^^Nathaniel S. Shaler ... 91, 

13. Conservation of National resources — National Conser- 

vation Commission 102 

14. Depreciation in cotton factories — Tariff Board . .117 

III Capital and Investment. 

15. Capitalization and urban land-values — Eichard M. 

Hurd 120 

16. Some examples of increasing land-values — C. B. Fille- 

brown 130 

17. The New York exchanges — Governor Hughes' Commis- 

sion . 138 

IV Labor and Population. 

18. Differences in efficiency of weavers — TariflF Board . 157 

19. Conservation of human life — Irving Fisher . . . 163 



CONTENTS 

PAGE 

20. Wages of farm labor — George K. Holmes . . . .176 

21. Eeal wages in American towns — British Board of 

Trade 184 

22. Immigration and conditions of labor — J. W. Jenks and 

Wk J. Lauck 187 

23. Wages and cost of living — British Board of Trade . 199 

24. Cotton mill efficiency and machinery — Tariff Board . 206 

25. The minimum rate policy — D. A. McCabe . . . .214 

V Costs, Profits and Monopoly. 

26. Prices and farm management — Henry C. Taylor . . 228 

27. Some findings on cotton manufactures — Tariff Board 233 

28. Cost of production in the steel industry — Commis- 

sioner of Corporations 247 

29. The Standard Oil trust — Commissioner of Corpora- 

tions 255 

30. Water-power development in the United States — Com- 

missioner of Corporations 265 

VI Private Incomes and Social Welfare. 

31. The standard of life — Mrs. Bernard Bosanquet . . 275 

32. The influence of income on standards of life^ — Robert 

C. Chapin 284 

33. Economic causes as affecting political history — W. 

M. Daniels 292 

VII The State and Industry. 

34. Gold production, 1890-1910— Director of the Mint . 303 

35. The National banks — Comptroller of the Currency . 314 

36. Plan for monetary legislation — National Monetary 

Commission 324 

37. The trade balance of the United States — George Paish 337 

38. Some findings on wool — Tariff Board 347 

39. Findings on the wool tariff— President Taft . . . 358 

40. The Interstate Commerce Act — Act of Congress . .361 

41. Railroad values and rates — Interstate Commerce 

Commission 368 

42. Railroads as national assets — Interstate Commerce 

Commission 379 

43. Sherman Anti-trust law — Act of Congress .... 383 



SOURCE BOOK IN ECONOMICS 



SOUUCE BOOK m 
ECONOMICS 

ORIGIN OP EXCHANGE— SPENCER'S THEORY 

[In his Principles of Sociology, Herbert Spencer suggests that 
barter, and exchange for money, may have grown out of the exchange 
of presents; and lie gives some evidence in support of this view. 
In discussing ceremonial institutions he shows that the custom of 
giving presents developed into the various forms of tribute, taxation, 
sacrifice, and ecclesiastical ofTerings. He then says (Vol. II, pp. 99- 
100; reproduced by permission of the publishers, D. Appleton and Co., 
New York; three volumes, 1895 and 1896) :] 

Something must be added concerning presents passing be- 
tween those who do not stand in acknowledged relations of 
superior and inferior. 

Consideration of these carries us back to the primitive form 
of present-making, as it occurs between members of alien so- 
cieties; and on looking at some of the facts, there is sug- 
gested a question of much interest: AVhether from the pro- 
pitiatory gift made under these circumstances there does 
not originate another important kind of social action? 
Barter is not, as we are apt to suppose, universally under- 
stood.^ Cook, speaking of his failure to make any exchange 
of articles with the Australians, says, ''They had, indeed, no 
idea of traffic." And other statements suggest that when 
exchange begins, the thought of equivalence between the things 
given and received scarcely arises. Of the Ostyaks, who sup- 
plied them ''with plenty of lish and wildfowl," Bell remarks, 

1 [Compare with A. Smith's idea of a "propensity in human nature 
to truck, barter, and exchange one thing for another." Wealth of Na- 
tions, book i, ch. 2. — Ed.] 

3 



4 ORIGIN OF EXCHANGE 

"Give them only a little tobacco and a dram of brandy, and 
they ask no more, not knowing the use of money." Eemem- 
bering that at first no means of measuring values exists, and 
that the conception of equality of value has to grow by use, 
it seems not impossible that mutual propitiation by gifts was 
the act from which barter arose: the expectation that the 
present received would be of like worth with that given be- 
ing gradually established, and the exchanged articles simul- 
taneously losing the character of presents. One may, indeed, 
see the connection between the two in the familiar eases of 
gifts made by European travelers to native chiefs; as where 
Mungo Park writes: "Presented Mansa Kussan [the chief 
man of Julifunda] with some amber, coral, and scarlet, with 
which he appeared to be perfectly satisfied, and sent a bul- 
lock in return," Such transactions show us both the original 
meaning of the initial present as propitiatory, and the idea 
that the responsive present should have an approximately-like 
value : implying informal barter. Nay more. Certain usages 
of the North American Indians suggest that even a circulating 
medium may originate from propitiatory presents. Catlin 
writes : 

Wampum has been invariably manufactured, and highly valued as 
a circulating medium (instead of coins, of which the Indians have no 
knowledge) ; so many strings, or so many hands' breadth, being the 
fixed value of a horse, a gun, a robe, etc. In treaties the wampum 
belt has been passed as the pledge of friendship, and from time 
immemorial sent to hostile tribes, as the messenger of peace; or paid 
by so many fathoms' length, as tribute to conquering enemies. 

[In the part on "Industrial Institutions," originally published ten 
years later than the foregoing, Spencer says. Vol. Ill, pp. 387-391 J : 

Among incidents of human intercourse few seem simpler 
than barter ; and the underlying conception is one which even 
the stupidest among savages are supposed to understand. It 
is not so, however. In . . . treating of Cerenionial Insti- 
tutions, reasons were given for suspecting that barter arose 
from the giving o£ presents and the receipt of presents in re- 



ORIGIN OF EXCHANGE 5 

turn. Beyond the evidence there assigned there is sufficient 
further evidence to justify this conclusion. In the narrative 
of an early voyager, whose name I do not remember, occurs 
the statement that barter was not understood by the Austra- 
lian savages: a statement which I recollect thinking scarcely 
credible. Verifying testimonies have, however, since come to 
hand. Concerning the New Guinea people we read : 

One of the most curious features noticed by Dr. Mikluclio Maelay 
was the apparent absence of trade or barter among the people of 
Astrolabe Bay. They exchange presents, however, when different tribes 
visit each other, somewhat as among the New Zealanders, each party 
giving tlie other what they have to spare; but no one article seems 
ever to be exchanged for another of supposed equivalent value. 

Confirmation is yielded by the account D'Albertis gives of 
certain natives from the interior of New Guinea. Concerning 
one who came on board he says : 

I asked him for the belt he wore round his waist, in exchange for 
some glass beads, but he did not seem to understand the proposal, which 
I had to make in pantomime instead of vocal language. He spoke 
a few words with his people, and then he took off his belt, and re- 
ceived in exchange the beads and the looking-glass, in which he seemed 
afraid to look at himself. When, however, he was on the point of 
returning to shore, he wanted to have his belt back, and it was im- 
possible to make him understand that he had sold it, and that if he 
did not wish to part with it he must return the articles he had re- 
ceived in exchange. 

Another instance, somewhat different in its aspect, comes to 
us from Samoa. Turner says that at a burial "every one 
brought a present, and the day after the funeral these pres- 
ents were all so distributed again as that every one went away 
with something in return for what he brought." Of a re- 
.mote people, the tribes of Nootka Sound, we read as follows 
in Bancroft : 

They manifest much shrewdness in their exchanges; even their sys- 
tem of presents is a species of trade, the full value of each gift being 
confidently expected in a return present on the next festive occasion. 



6 ORIGIN OF EXCHANGE 

A different phase of the process occurs in Africa. Describ- 
ing the Bihenos, Capello and Ivens tell us : 

Following tlie vicious system in operation throiigliout Africa of not 
selling anything to the European, but making him a present of it, 
they extort from him in turn all his goods and effects, bit by bit, 
until the unhappy man finds himself under the necessity of refusing 
all presents. 

Thus the very idea of exchange, without which there can- 
not begin commercial intercourse and industrial organiza- 
tion, has itself to grow out of certain ceremonial actions orig- 
inated by the desire to propitiate. 

In the absence of measures of quantity and value, the 
idea of equivalence must remain vague. Only where the 
things offered in barter are extremely unlike in their amounts 
or qualities or characters, does lack of equivalence become 
manifest. How rude trading transactions are at first, is well 
shown by the following extract concerning an Indian people, 
the Chalikatas. Dalton says: 

It was very interesting to watch the barter that took place there 
between these suspicious, excitable savages and the cool, wily traders 
of the plains. The former took salt chiefly in exchange for the com- 
modities they brought down, and they would not submit to its being 
measured or weighed to them by any known process. Seated in front 
of the trader's stall, they cautiously take from a well-guarded basket 
one of the articles they wish to exchange. Of this they still retain 
a hold with their toe or their knee as they plunge two dirty paws 
into the bright white salt. Tliey make an attempt to transfer all they 
can grasp to their own basket, but the trader, with a sweep of his 
hand, knocks off half the quantity, and then there is a fiery alter- 
cation, which is generally terminated by a concession on the part of 
the trader of a few additional pinches. 

In the absence of a medium of exchange other incon- 
veniences arise. One is the difficulty of bringing into rela- 
tion those whose needs are reciprocal. The experiences of 
Dr. Barth in Africa clearly exemplify this evil: 

A small farmer who brings his corn to the Monday market ... in 
Kdkawa, will on no account take his payment in shells, and will 



ORIGIN OF EXCHANGE 7 

rarely accept of a dollar: the person, therefore, who wishes to buy- 
corn, if he lias only dollars, must first exchange a dollar for shells, 
or rather buy shells; then with the shells he must buy a 'kulgu," or 
shirt; and alter a good deal of bartering he may thus succeed in 
buying the corn. . . . The fatigue to be undergone in the market is 
such that I have very often seen my servants return in a state of the 
utmost exhaustion. 

In this place, better than elsewhere, may be named an 
obstacle to a developed system of exchange which results 
from the misapprehensions of the uninitiated. Of the Chi- 
tralis, Captain Younghusband tells us that they supposed 
rupees to be ornaments only, and could not understand re- 
ceiving them in payment for work. Pim and Seemann say 
of the Bayano Indians that: 

They do not seem to understand exactly the value of money, and 
think that the true drift of making a bargain consists in offering a 
sum different to that demanded. I happened to be in a shop when 
four of them came in to buy a comb, for which half a crown Itwo 
and a half shillings] was asked, but the Indians said that unless the 
shopkeeper would take three shillings they could not think of having it. 

Here "the higgling of the market" is exhibited under its 
general form — the expression of a difference between the esti- 
mates of buyer and seller; and, showing that lack of dis- 
crimination characterizing low intelligences, there is a 
confusion between the two ways of asserting the difference. 



ORIGIN OF MARKETS AND PRICES 

[Sib Henky Maine in one of his lectures, cited below, shows that the 
modern ideas of competition-rent for land and of the sale of land by 
individuals were not known in primitive communities. Kents were de- 
termined by custom. Eack-rent, an Irish term sometimes used to 
indicate an extreme competition-rent, was really the rent exacted 
from a person of a strange tribe in contrast with *'a fair rent, from 
one of the tribe." '"In a primitive society the person who submits to 
extreme teims from one group is pretty sure to be an outcast thrown 
on the world by the breaking up and dispersion of some other group, 
and the eflfect of giving him land on these terms is not to bring him 
under the description of a tenant as understood by the economists, but 
to reduce him to a condition resembling predial servitude." 

The author then broadens his inquiry to that of the origin of com- 
petition-price, or market-price in general; competition-rent of land 
being, as he shows, but one case of market-price. We quote below 
most of pages 189-201, in the chapter on "The early history of price 
and rent" from Village-Communities in the East and West, six lec- 
tures delivered at Oxford. First published 1871; quotations from the 
third edition, 1876, by courtesy of the publisher, John Murray, Alber- 
marle Street, London.] 

It would almost certainly be labor wasted to search among 
the records of ancient law for any trace of the ideas which 
we associate with competition-rents. But if land in primitive 
times was very rarely sold or (in our sense) rented, and if 
movable property was very rarely hired for money, it is at 
least probable that from a very early date movables were 
purchased. It does not appear to me quite a hopeless under- 
taking to trace the gradual development of the notions con- 
nected with price; and here, if at all, we shall be able to 
follow the early history of bargaining or competition. Nor, 
if we can discover any primitive ideas on the point, need we 
hesitate to transfer them from the sale of movables to the 



ORIGIN OF MARKETS AND PRICES 9 

competition of land. The Roman lawyers remark of the two 
contracts called Sale for Price, and Hiring for Considera- 
tion, that they are substantially the same, and that the rules 
which govern one may be applied to the other. The observa- 
tion seems to me not only true, but one which it is important 
to keep in mind. You cannot indeed without forcing language 
speak of the contract of sale in terms of the contract of let- 
ting and hiring; but the converse is easy, and there is no 
incorrectness in speaking of the letting and hiring of land 
as a sale for a period of time, with the price spread over 
that period. I must confess I could wish that in some famous 
books this simple truth had been kept in view. It has several 
times occurred to me, in reading treatises on political economy, 
that if the writer had always recollected that a competition- 
rent is after all nothing but price payable by instalments, 
much unnecessarily mysterious language might have been 
spared and some (to say the least) doubtful theories as to 
the origin of rent might have been avoided. The value of 
this impression anybody can verify for himself. 

What, in a primitive society, is the measure of price? It 
can only be called custom. Although in the East influences 
destructive of the primitive notion are actively at work, yet 
in the more retired villages the artificer who plies an an- 
cient trade still sells his wares for the customary prices, 
and would always change their quality rather than their 
price — a preference, I must remark, which has now and then 
exposed the natives of India to imputations of fraud not 
wholly deserved. And in the "West, even in. our own coun- 
try, there are traces of the same strong feeling that price 
should be determined by custom in the long series of royal, 
parliamentary, and municipal attempts to fix prices by tariff. 
Such attempts are justly condemned as false political economy, 
but it is sometimes forgotten that false political economy may 
be very instructive history. , . . 

What, then, is the origin of the rule that a man may 
ask — or, if you choose so to put it, that he does ask — the 



10 ORIGIN OF MARKETS AND PRICES 

highest available price for the wares which he has to sell? 
I think that it is in the beginning a rule of the market, and 
that it has come to prevail in proportion to the spread of ideas 
originating in the market. This indeed would be a proposi- 
tion of little value, if I did not go farther. You are well 
aware that the fundamental proposition of political economy- 
is often put as the rule of buying in the cheapest market and 
selling in the dearest. But since the primitive period, the 
character of markets has changed almost as much as that 
of society itself. In order to understand what a market orig- 
inally was, you must try to picture to yourselves a territory 
occupied by village-communities, self-acting and as yet 
autonomous, each cultivating its arable land in the middle of 
its waste, and each, I fear I must add, at perpetual 
war with its neighbor. But at several points, points prob- 
ably where the domains of two or three villages converged, 
there appear to have been spaces of what we should now 
call neutral ground. These were the markets. They were 
probably the only places at which the members of the dif- 
ferent primitive groups met for any purpose except war- 
fare, and the persons who came to them were doubtless 
at first persons specially empowered to exchange the produce 
and manufactures of one little village-community for those 
of another. Sir John Lubbock in his recent volume on the 
"Origin of Civilization," has some interesting remarks on 
the traces which remain of the very ancient association be- 
tween markets and neutrality (page 205) ; nor — though I 
have not now an opportunity of following up the train of 
thought — can I help observing that there is a historical con- 
nection of the utmost importance to the moderns between the 
two, since the Jus Gentium of the Roman Prgetor, which was 
in part originally a market law, is the undoubted parent of 
our International Law, But, besides the notion of neutrality, 
another idea was anciently associated with markets. This 
was the idea of sharp practice and hard bargaining. The three 
ideas seem all blended in the attributes of the god Hermes 



ORIGIN OF MARKETS AND PRICES 11 

or IMercury — at once the god of boundaries, the prince of 
messengers or ambassadors, and the patron of trade, of cheat- 
ing, and of thieves. 

The market was then the space of neutral ground in which, 
under the ancient constitution of society, the members of the 
different autonomous proprietary groups met in safety and 
bought and sokl unshackled by customary rule. Here, it 
seems to me, the notion of a man's right to get the best price ^ 
for his wares took its rise, and hence it spread over the world. 
Market law, I should here observe, has had a great fortune 
in legal history. The Jus Gentium of the Eomans, though 
doubtless intended in part to adjust the relations of Koman 
citizens to a subject population, grew also in part out of com- 
mercial exigencies, and the Roman Jus Gentium was grad- 
ually sublimated into a moral theory which, among theories 
not laying claim to a religious sanction, had no rival in the 
world till the ethical doctrines of Bentham made their ap- 
pearance. If, however, I could venture to detain you with 
a discussion on technical law, I could easily prove that market 
law has long exercised and still exercises a dissolving and 
transforming influence over the very class of rules which are 
profoundly modifying the more rigid and archaic branches 
of jurisprudence. The law of personal or movable property 
tends to absorb the law of land or of immovable property, 
but the law of movable tends steadily to assimilate itself to 
the law of the market. The wish to establish as law that 
which is commercially expedient is plainly visible in the re- 
cent decisions of English courts of justice; a whole group 
of legal maxims having their origin in the law of the market 
(of which the rule of caveat emptor is the most significant) 
are growing at the expense of all others which compete with 
them. . . . 

It seems to me that the half-conscious repulsions which men 
feel to doctrines which they do not deny might often be ex- 
amined with more profit than is usually supposed. They will 
f-ometimes be found to be the reflection of an older law of 



12 ORIGIN OF MARKETS AND PRICES 

ideas. Much of the moral opinion is no doubt in advance 
of law, for it is the fruit of religious or philosophical theories 
having a different origin from the law and not yet incor- 
porated with it. But a good deal of it seems to me to pre- 
serve rules of conduct which, though expelled from law, linger 
in sentiment or practice. The repeal of the usury laws has 
made it lawful to take any rate of interest for money, yet the 
taking of usurious interest is not thought to be respectable, 
and our courts of equity have evidently great difficulty in 
bringing themselves to a complete recognition of the new 
principle. Bearing this example in mind, you may not think 
it an idle question if I ask: What is the real origin of the 
feeling that it is not creditable to drive a hard bargain with 
a near relative or a friend? It can hardly be said that there 
is any rule of morality to forbid it. The feeling seems to me 
to bear the traces of the old notion that men united in natural 
groups do not deal with one another on principles of trade. 
The only natural group in which men are now joined is the 
family; and the only bond of union resembling that of the 
family is that which men create for themselves by friend- 
ship. ... 

All indications seem to me, therefore, to point to the same 
conclusion. Men united in those groups out of which modern 
society has grown do not trade together on what I may call, 
for shortness, commercial principles. The general proposi- 
tion which is the basis of political economy made its first ap- 
proach to truth under the only circumstances which admitted 
of men meeting at arm's length, not as members of the same 
group, but as strangers. Gradually the assumption of the 
right to get the best price has penetrated into the interior 
of these groups, but it is never completely received so long 
as the bond of connection between man and man is assumed 
to be that of family or clan-connection. The rule only tri- 
umphs when the primitive community is in ruins. What are 
the causes which have generalized a rule of the market until it 
has been supposed to express an original and fundamental ten- 



ORIGIN OF MARKETS AND PRICES 13 

dency of Imraau nature, it is impossible to state fully, so 
multifarious have they been. Everything which has helped 
to convert society into a collection of individuals from being 
an assemblage of families, has helped to add to the truth of the 
assertion made of human nature by the political economists. 
One cause may be assigned, after observation of the East, 
in the substitution of caravan or carrying trade for the fre- 
quentation of markets. When the first system grows up, the 
merchant, often to some extent invested with the privileges 
of an ambassador, carries his goods from the place of pro- 
duction, stores them in local entrepots, and sells them on the 
principles of the market. ... A man who will pay the price 
of the day for corn collected from all parts of India, or for 
cotton-cloth from England, will complain (so I am told) if 
he is asked an unaccustomed price for a shoe. 

If the notion of getting the best price for movable property 
has only crept to reception by insensible steps, it is all but 
certain that the idea of taking the highest obtainable rent 
for land is relatively of very modern origin. The rent of land 
corresponds to the price of goods, but doubtless was slower 
in conforming to economical law, since the impression of a 
brotherhood in the ownership of land still survived when goods 
had long since become the subject of individual property. 
So strong is the presumption against the existence of compe- 
tition-rents in a country peopled by village-communities, that 
it would require the very clearest evidence to convince me 
that they were anywhere found under native conditions of 
society, but the evidence (as I told you) is remarkably un- 
convincing. . . . 

The right to take the highest obtainable rent for land 
is, as a matter of fact and as a matter of morality, a right 
derived from a rule of the market. Both the explanation and 
the justification of the exercise of the right in England and 
Scotland is that in these countries there really is a market 
for land. Yet it is notorious that, in England at all events, 
land is not universally rack-rented. But where is it that the 



14 ORIGIN OP MARKETS AND PRICES 

theoretical right is not exercised? It is substantially true 
that, where the manorial groups substituted for the old village 
groups survive, there are no rack-rents. What is sometimes 
called the feudal feeling has much in common with the old 
feeling of brotherhood which forbade hard bargains, though 
like much else it has passed from the collective community 
to the modern representative of its autocratic chieftain. 
Even in England the archaic rules I have been describing 
have not yet quite lost their authority. . . . 

It is a very remarkable fact that the earliest English emi- 
grants to North America — who, you know, belonged prin- 
cipally to the class of yeomanry — organized themselves at 
first in village-communities for purposes of cultivation. When 
a town was organized, the process was that the "General 
Court granted a tract of land to a company of persons. The 
land was first held by the company as property in common." 
(Palfrey, *' History of New England," vol. II, p. 13.) An 
American commentator on this passage adds: ''The company 
of proprietors proceeded to divide the land by assigning first 
house-lots (in Marlborough from fifteen to twenty acres), 
then tracts of meadow land, and in some cases mineral land, 
i.e., where bog-iron ore was found. Pasture and woodland 
remained in common as the property of the company, but 
a law of the General Court in 1660 provided that 'here- 
after no cottage or dwelling-house be admitted to the priv- 
ilege of commonage for wood, timber, or herbage but such 
as are already in being, or shall be erected with the consent 
of the town. ' From that time the commoners appear as a kind 
of aristocracy, and the commons were gradually divided up." 
This is not only a tolerably exact account of the ancient 
European and existing village-community, but it is also a 
history of its natural development, where the causes which 
turn it into a manorial group are absent, and of its ultimate 
dissolution. 



ODD PRICES AND BARGAINS IN RETAIL TRADE 

[The author of the paper bearing this title, in making a statistical 
study of a semiannual bargain-sale price-list, finds that about 32 per 
cent, of all prices quoted end in the iigure 9; 16 per cent, in the figure 
5; 13 per cent, in the figure 3; and 12 per cent, in the figure 8. 
Studying the figures in detail he suggests various interesting reasons 
for the preference shown in the price-list. We quote from the last 
third of tlie paper, by Robert C. Brooks, professor of Political Science 
in Swarthmore College; in University Studies, published by the Uni- 
versity of Cincinnati, March-April, 1908, pp. 20-28, here abbreviated 
and edited with the author's approval.] 

Are odd prices cheap prices? Tlie whole purpose of odd 
prices, as we have seen, is to suggest by means of carefully 
selected figures the idea of price reduction. How far may 
this suggestion be depended upon? In attempting to answer 
tliis question we should note first that odd prices are only part 
of a general plan to the same end. Readers of advertisements 
are familiar with the fact that in addition to quoting goods 
at 19, 49, 98 cents, and so on, the advertiser frequently seeks 
to convey the impression that reductions much greater than 
one or two cents have been made. The prospective buyer 
may take all such statements cum grano salis, and depend 
chiefly on the small but apparently visible reductions indicated 
by the odd prices themselves. Nevertheless the bargain hunter 
is abroad in the land, and even the most astounding of the 
announcements regarding "sacrifices," ''slaughtered prices," 
and so on must find some credence. . . . [Some examples.] 

Now there is nothing intrinsically improbable in any of the 
above statements taken separately. There are bargains and 
bargains as every experienced shopper knows. Many con- 
tingencies constantly occur in retail trade which enable or 

15 



16 BARGAINS IN RETAIL TRADE 

compel merchants to offer goods at prices below the ordinary 
rates. Demand fluctuates widely; in almost every line of 
business there are dull seasons and dull days during which 
retailers think it wise to offer inducements in order to stimu- 
late a sluggish buying public. Every merchant, large and 
sm'all, has to dispose from time to time of "stickers" — old 
stocks of slow moving goods. Particularly when changes of 
fashion occur or improvements are coming in rapidly is this 
bound to be the case. Manufacturers and jobbers sometimes 
misjudge the market and find themselves with large stocks 
on hand near the end of a season, or they may lose their 
heads even when there is no danger and let go at a reduc- 
tion. In such cases retailers, particularly large retailers, are 
in a position to secure the goods on terms which enable them 
in their turn to sell at what are really very low rates. The 
purchase of bankrupt stocks, or of the stocks of concerns 
that are going out of business, also offers opportunities. 
Other contingencies are constantly occurring among the hun- 
dreds of manufacturers, jobbers, and retailers. Of course in 
many such cases the fact that goods are offered at reduced 
prices may indicate that they are either damaged, out of 
style, or undesirable in color or in some other way. This 
leaves open the question as to whether the reduced prices are 
really low, qualities being taken into consideration. There 
can be no doubt, however, that opportunities are often of- 
fered to purchasers to buy at what are really very favorable 
rates. For example, what has become a "sticker" to a mer- 
chant may satisfy a very fresh and keen desire on the part 
of a customer. Reductions made because of a change of 
fashion may mean a great deal to purchasers who care little 
for style. Even standard goods, as for instance silks a few 
years ago, may be turned out in large quantities just before 
a sudden falling off in demand. At such times consumers 
may justly consider themselves fortunate in having an oppor- 
tunity to stock up while prices are low. Then, too, it some- 
times happens that a certain line is sold at a reduction to 



BARGAINS IN RETAIL TRADE 17 

serve the purpose of the bargain counter, that is, to bring 
a crowd which will be tempted to buy other things. The 
particular goods that, so to speak, serve as bait may be very 
attractive considered separately. Finally it should be said 
that successful merchants are neither fools, nor do they take 
their customers to be tools. They realize that understatement 
is more effective in the long run than overstatement, that it 
does not pay to play up small opportunities as great features, 
and that it does pay, most emphatically, to mean bargain when 
you say bargain. To be sure there are "lambs'' among retail 
purchasers just as there are in Wall Street, with this dif- 
ference, however, that in retail trade the lambs do not go 
* ' broke. ' ' In the very nature of the case they must continue 
buying. And unintelligent as many buyers doubtless are, 
they do not always return to the places where they have been 
shorn. 

In a word, there certainly are bargains — for those who are 
able to perceive them — and not infrequently at that. On the 
other hand, there is a considerable element of deception in 
many offerings under this seductive heading. Even allowing 
fully for the various contingencies noted in the foregoing 
paragraph it still remains highly improbable that all the 
vast array of startling reductions advertised every day can be 
hona fide. Sometimes they measure the credulity of cus- 
tomers or of certain classes of customers rather than the 
operations of a "horizontal discount knife." The writer has 
been told of cases where goods have been deliberately cut into 
"remnants" or handkerchiefs "mussed" by being drawn 
through the hands. Thrown out carelessly on the counter such 
"attractions" prove irresistible to a certain class of buyers 
who snatch them up without examination as to quality or 
price, convinced from the apparent condition of the goods that 
they have hit upon famous bargains. Experienced shoppers 
can usually tell of at least a few cases that have come to 
their notice where certain goods have been boosted fifty 
cents or a dollar in price at special sales, the dealer doubt- 



18 BARGAINS IN RETAIL TRADE 

less presuming on the ignorance of customers and the blasts 
of his advertisement writer to carry off the articles. Success 
in comparatively few instances of this sort would make up 
many actual small reductions of a cent or two to the odd 
price basis. In fairness it must be said, however, that the 
best merchants regard such practices as bad morally, or at 
least injudicious. Where the thing is done surreptitiously oc- 
casional discoveries are certain to occur, and the store is bound 
to suffer losses out of all proportion to the gains derived from 
the foolish trick. Sometimes, however, the practice is openly 
employed, as in the case of bargain sales held on dull days 
or in the mornings. In such cases every one is given to under- 
stand that prices will be lower at the time and higher later, 
and no moral blame at least can be attached to the merchant 
for so acting. Nevertheless this knowledge does not soothe the 
ruffled temper of the purchaser who is forced to pay twenty- 
five cents for something his neighbor may have gotten for 
nineteen cents. Realizing this fact merchants generally fol- 
low the "one price policy" of holding goods at a given figure 
for some time. If reduction then becomes necessary goods 
are held at the lower figure until closed out, or further re- 
ductions without intervening advances are made until this 
end is attained. 

There is plenty of available evidence that some "great 
reductions" heralded in advertisements are really great exag- 
gerations of very small reductions. Instances of this sort 
are given by the Dry Goods Economist of March 19, 1904. 
. . . Frequently one notices the beginning of better things 
or at least of greater caution in the avoidance of direct affirma- 
tions that former prices were so and so, and the substitution 
therefore of statements to the effect that "values" or "quali- 
ties" would justify higher prices than the ones asked. Some- 
times reformation takes the dubious path of sweeping an- 
nouncements that competitors can not meet the prices fixed 
by the advertiser. Investigation of such statements requires 
more time than most purchasers can afford to give, but in all 



BARGAINS IN RETAIL TRADE 19 

retail markets of any considerable size they are simply not 
warranted by facts. Every wide-awake merchant constantly 
has opportunities along- certain lines — so much may be ad- 
mitted — but no merchant has an absolute monopoly of such 
opportunities. The unceasing vigilance with which retail 
traders watch each other is scarcely known to the general 
public. In every large establishment there is a "'Comparison 
Department" specially charged with this function. "Spot- 
ters" are constantly being sent out by the head of this de- 
partment to observe the doings of competitors and daily re- 
ports of their findings are made. If a rival store offers a 
great bargain, samples are bought, carefully examined, even 
torn to pieces if necessary to ascertain qualities, and a cor- 
responding or greater reduction made if thought advisable. 
Under the circumstances, the advertisements of merchants who 
claim everything all the time are more ludicrous than any- 
thing else. 

Standards of retail business. While there is doubtless 
much to condemn in some of the practices cited in the fore- 
going pages it would be highly unjust to charge all retailers 
with deliberate and habitual misrepresentation. Many of the 
greatest successes, one can say practically all the permanent 
successes, of the mercantile world, have been made by firms 
which have conscientiously avoided deception. It would be 
easy to mention cases of this sort in New York, Chicago, 
Philadelphia, and other of our large cities, but they are famil- 
iar enough without mention. Even where retail practice is 
not so scrupulous, deliberate and habitual misrepresentation 
can not always be charged. The truth is that many merchants 
of this as well as of a higher type use such terms as qualities, 
values, prices, etc., very loosely, and more in accordance with 
the customs of the market in which they happen to be doing 
business than with the definitions of economics or the canons 
of ethics. Not infrequently the community, or a certain class 
of buyers in the community, is to blame in large part for the 
abuses which spring up in retailing. On this point the writer 



20 BARGAINS IN RETAIL TRADE 

finds it impossible to agree entirely with a very clever author- 
ity on merchandising who maintains that ''the retailer is the 
king of business. It 's not the consumer — arguments to the 
contrary notwithstanding. It 's upon the education given the 
consumer by the dealer that the formation of taste depends. ' ' 
Granting that the influence of the retailer is great, it still 
remains true that his patrons are, presumably at least, fairly 
intelligent grown-up persons who exercise ordinary prudence 
in business matters. The retailer is more active, of course, 
in designing and applying various plans to attract trade; but 
precisely the same motive as his own, namely, self-interest 
rightly or wrongly conceived, dictates the action of his cus- 
tomers in giving or withholding patronage. The latter may 
be careless, ignorant, or under the spell of that delusive cupid- 
ity which is always seeking something for nothing, and these 
conditions may permit or encourage merchants to employ 
tricky devices. Even so, purchasers can hardly be exonerated 
from all blame for the resulting demoralized condition of the 
retail market. In illustration of the foregoing may be cited 
numerous cases of towns and cities where severely com- 
petitive "selling campaigns" have been carried so far that 
in the end it becomes almost impossible to dispose of anything 
except with the aid of such devices as trading stamps or as 
bargains on one pretext or another — where the people "have 
been so deafened with the siren song of 'bargains,' " as one 
trade journal puts it, "that they don't know one when they 
see it. ' ' Manifestly such conditions reflect not only the char- 
acter of the mercantile element, but also the character of 
the public as retail buyers — a conclusion which need not be 
blinked because phenomena of this sort are so exceedingly 
common. The following advice given to a merchant who 
complained of trade conditions demoralized in this manner 
is particularly noteworthy because of its frank implication 
that retail trade as at present conducted is not simply a price 
competition : 



BARGAINS IN RETAIL TRADE 21 

. . . The wise merchant, when he sees a wave of price-cutting sweep- 
ing over his community, will dodge the competition as far as he is 
able. He will do all he can to impress his community that there is 
something more than price to be considered. He will not do this by 
direct statements to that effect; that goes without saying. But he 
will try to get a reputation for his store on something besides price, 
always being smart enough to create a reputation for selling as low 
as his competitors. He will sell staples extremely low, but on novelties 
he '11 make enough profit to offset the loss. And he will get the people 
coming to him for these novelties. He '11 talk style and fashion in his 
ads, and over the counter; he'll show the new and fashionable things 
and he will have them before the other fellows get them in stock.i 

Further advice along the same lines is given, but enough 
has been quoted to make clear the conditions which compel 
merchants either to cut prices extensively or to resort to other 
means of meeting a cut price competition. 

A retail buying policy. With such complex and often 
deceptive conditions existing in retail trade it is a matter of 
considerable difficulty to formulate a policy for buyers to 
pursue. Certain general rules seem fairly clear, however. 
It is an old maxim that nothing is a bargain which is not 
needed. Unfortunately purchasers often forget this; with 
many people buying is a passion rather than the cold calcula- 
tion of the economic man. One qualification of the maxim 
quoted above is of some importance, however. There are many 
regularly recurring wants which the ordinary purchaser satis- 
fies as they reach their maximum intensity, that is, usually, 
in the very thick of the season. As a consequence he pays 
the highest retail prices for his goods. A careful study of the 
cycle of special sales of various sorts (for they run in a fairly 
regular cycle through the year) will often enable him to ef- 
fect considerable savings, by taking advantage of low prices 
during dull seasons. Another general rule for the bargain 
seeker is that he should consider the cost in effort as well 
as the money-cost of the things he buys. In spite of all the 
devices to facilitate the examination of goods and their de- 

1 Dry Goods Economist, JMarch 18. lOOfi, p. 15. 



22 BARGAINS IN RETAIL TRADE 

livery, shopping remains an arduous occupation. Notoriously 
it is often carried too far. Mrs. John Lane tells the story 
in a recent number of an English review of a ''woman of 
massive intellect" who saved seven pence by going to a dis- 
tant suburb for Brussels sprouts. As a consequence she be- 
came so exhausted that it took several days and the services 
of a fashionable physician to restore her. Perhaps it is be- 
cause of the frequent neglect of two such obvious principles 
as the foregoing — namely, not to buy what you don't need 
and not to go to too much trouble in your buying — that skep- 
ticism with regard to the existence of any such things as 
bargains in retail trade is so common. Often, indeed, it is 
the most indefatigable shopper who is most skeptical on this 
point, which, however, merely goes to show that over-sanguine 
expectations lead easily to irrational disappointments. 

But there are also certain positive rules with regard to 
buying which may serve as supplement to the preceding 
"don'ts." Where the sum involved is sufficiently large or 
where an article is likely to be in constant demand a careful 
examination of the stocks of various retailers is usually worth 
while, whether or not any bargains are being advertised at 
the time. It is always of importance to ascertain and take 
into consideration the general reputation for honesty and fair- 
ness of the merchant with whom you are dealing. Fortunately 
information of this sort is much more easily obtained than that 
exhaustive knowledge of goods and values which one would 
require in order to be fortified against deception and over- 
charge. In this connection the purchaser would do well to 
remember the principle known as "the reaction of consump- 
tion upon production. ' ' ^ Every purchase of goods under 
given conditions is a vote, accompanied by material support, 
to continue those conditions. The application of a little con- 
science in such matters would discourage tremendously many 
of the shady practices now prevailing in retail trade. 

With regard to bargains masquerading in the guise of odd 

1 See F. A. Fetter's Principles of Economics, ch, 41. 



BARGAINS IN RETAIL TRADE 23 

prices a rather greater degree of caution would seem ad- 
visable. Odd prices are doubtless clever enough with a rather 
meretricious sort of cleverness, but this will hardly com- 
mend them to careful buyers. If certain figures are intrin- 
sically so attractive one wonders whether the merchants who 
put their trust in such figures do not neglect other and more 
solid advantages which they might offer their customers. 
Reductions of a cent or two on some few articles the regular 
prices of which are definitely known may be bona fide, but 
with regard to the values of the great majority of things of- 
fered for sale under an odd-price scheme the ordinary pur- 
chaser is not competent to judge, and consequently is likely 
to be deceived. There are many reasons, as we have seen, 
why goods frequently have to be reduced in price in retail 
trade, but there is no reason at all for believing that an ex- 
cessively large number of these reductions should follow in 
such a series as 98, 79, 69, 49, and so on. Nor can one attach 
much weight to the argument that odd prices attract so much 
additional custom that they enable the merchant employing 
them to purchase in so much larger quantities and to so much 
better advantage that he can afford to make frequent hona fide 
reductions of a cent or two. Retail competition is far too 
complex; it involves, as we have already had occasion to ob- 
serve, so many factors besides price alone that the effect of 
the one rather doubtful factor of odd prices, assuming other 
conditions equal, would count for comparatively little. And 
other conditions would seldom be equal. Moreover, the sort 
of custom attracted by odd prices and similar devices is apt 
to be much more fickle than that which is built up by con- 
servative and less sensational business practices. There is al- 
ways one advantage to the purchaser in looking over goods 
marked at round price points, namely, that he can consider 
alternate utilities of the various articles of about the same 
value he may need, undisturbed by differences of a cent or 
two in cost. On the other hand, if merchants string their 
prices up and down the scale in order to take advantage of 



24 BARGAINS IN RETAIL TRADE 

popular figures, purchasers too often succeed in "saving" two 
cents on a 98 cent article they do not need at the cost of 
the far greater utility of a dollar article they really do need. 
In the long run such results are good neither for sellers nor 
buyers. To quote proverbs, which notoriously can always be 
made to contradict each other: those who "take care of the 
pennies" in the hope that "the dollars will take care of them- 
selves" should remember also that there is such a thing as a 
"penny wise, pound foolish" policy. Retail trade may need 
reforming in many particulars, but such reform can only 
come pari passu with the reform of retail buyers. Education 
for giving future mothers and fathers a knowledge of articles 
of common use, their qualities, prices, proper employment, 
markets wherein they are sold, and so on, is sadly needed. 
Until the public attains this knowledge and this point of view, 
odd prices and even more objectionable practices will continue 
to flourish. 



SOME SEASONAL PRICE-VARIATIONS IN FOOD 

[The seasonal variation in the production of some farm products and 
the corresponding changes in prices have been studied by H. C. Taylor 
and published in Bulletin 209 of the University of Wisconsin Agri- 
cultural Experiment Station (May, 1911). By the courtesy of Pro- 
fessor Taylor we are able to reproduce Avitli the diagrams the fol- 
lowing passages. The facts here given illustrate interestingly the 
nature and limits of elasticity of demand for these articles, the problem 
of time-value in perishable foods, and the influence of cold-storage in 
equalizing prices throughout the year.] 

Eggs; irregularity of supply. The egg market lends it- 
self well to the study of many of the forces which influence 



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Figure 1. Production of eggs on a Wisconsin farm; percentages of the annual 
total by months, five-year average. 

prices. Irregularity of the supply, variation in the quality 
of the product, and a highly elastic demand are characteristics 
strongly accentuated in the egg market. The monthly dis- 

25 



2G 



SEASONAL rRICE-VARIATIONS 



tribution of the average annual production of eggs on a Wis- 
consin dairy farm is shown in figure 1. The chart shows 
the percentage of the year's egg production gathered in each 
month in the year for five years. March and April were the 
months of greatest productions. The production fell oflf 
greatly during the summer months and reached its lowest level 
during the winter months. 

It is believed that this chart tells fairly well the story of 
the irregularity of egg production on farms where the keeping 
of poultry is primarily for supplying the wants of the house- 
hold, and the sale of eggs more or less incidental. 





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Figure 2. Weekly receipts and prices of "prime first" class eggs in the Chicago 
market, Feb. 1, 1909 to March 20, 1911. 

It is possible for the poultryman to control the ^^^ produc- 
tion in such a manner as to secure a much larger proportion of 
the annual product in the winter months, but the bulk of the 
egg supply is not produced under these conditions. ... Egg 
production is a widely disseminated non-specialized industry 
and the supply is not likely to be appreciably influenced by 
the conscious action of a few individuals. 

The Chicago egg market. The supply of eggs upon the 
Chicago market corresponds to these conditions of production. 
In Figure 2 the solid black line represents the weekly supply 
of eggs brought to Chicago, from February 1, 1909, to March 
20, 1911. The supply of eggs reached the maximum in April 
and May and gradually fell off until the end of the year. 

The price of eggs on the Chicago market shows the influ- 



SEASONAL PRICE-VARIATIONS 27 

euee of the irregular supply. The black dots connected by 
lines, in Figure 2, show the price of the best grade of eggs 
for one day in each week. 

The relation between the supply curve and the price curve 
in this chart illustrates the influence of variation in the supply 
upon the price of this perishable commodity. The fact that 
the price of eggs in Chicago remained above 20 cents during 
the periods of greatest receipts in 1909 and 1910 calls for 




Figure 3. Storage of eggs by a Chicago firm; by months, in percentages of total 

annoal storage. 

some explanation. The elastic character of the demand for 
eggs has already been mentioned. At a price between 20 and 
25 cents eggs become an inexpensive substitute for meat, and 
at the time of the year under consideration, weather condi- 
tions are usually such that eggs can be put upon the market 
in good condition. Under these circumstances the consump- 
tion of eggs expands enormously. 

The storage of eggs. The market is not entirely depend- 
ent, however, at the period of maximum supply upon the de- 
mand for eggs for immediate consumption. At that period 



28 SEASONAL PRICE-VARIATIONS 

many eggs are purchased and put in storage for use during 
the period of scarcity of fresh eggs. The time of year when 
eggs are put in storage by one Chicago jSrm is shown in Figure 
3. Without question this speculative buying steadies the 
price during the spring months of excessive supply, distributes 
the consumption more evenly through the year, and secures 
for the producers a higher return for their eggs than could be 
secured without storage. 

The stored egg is much less valuable in winter than is the 
fresh supply. The lower price curve shown for a few winter 
months in Figure 2 shows the prices of refrigerator eggs. It 
will be noted that there was often a difference of 10 cents per 
dozen between the price of fresh and of stored eggs. It should 
also be noted that the price at which the refrigerator eggs 
were sold was not very much higher than the price at which 
they were purchased. There must, in the long run, be 
enough difference to pay the actual costs of storage including 
rent for the warehouse, losses due to deterioration, interest on 
the money invested, insurance, and enough profit to induce a 
business man to give his attention to this business instead of 
doing something else. 

The thing of first importance both to producer and to con- 
sumer is an understanding of the proper methods of handling 
eggs, proper methods on the farms, in the country stores, in 
transit, in cold storage, in the shop of the city retailer and in 
the homes of the consumers. Success in holding a part of the 
eggs of the surplus season to meet the demands of the deficit 
season is dependent upon proper handling at every point. It 
is safe to say that more bad eggs reach the kitchens of Amer- 
ica from other causes than from too great a length of time in 
cold storage. Furthermore, many eggs that reach the kitchen 
in good condition are allowed to deteriorate in a warm room 
before the cook finds occasion to make use of them. There is 
responsibility all along the line. Failure at any one point 
spoils the egg. 



SEx\SONAL rRlCE-VARlATIONS 29 

The testimony before the Senate Committee relative to 
foods held in cold storage was to the effect that eggs produced 
during hot weather will not, even under most favorable con- 
ditions, remain fit for use over three months, and that more 
often in less than a month they are unfit for human food. 
This is reason for not stofing eggs more than temporarily 
during the hot months, but it does not give basis for legisla- 
tion against the storage of eggs in the cool months of spring 
to be kept over until the period of scarcity. 

The risk is great in the storage of eggs, because of the fact 
that the whole supply must be gotten rid of before the increase 
in the supply of fresh eggs, or they may become almost a 
total loss. Note in Figure 2 how the price of refrigerator 
eggs fell, in February, below the price which had been paid 
for them and then quotations ceased. This speculative fea- 
ture is accentilated by the fact that the period of greatest 
scarcity is followed so closely and so abruptly by the period of 
maximum supply, and by the uncertainty of the time of this 
change owing to the influence of the weather. 

Another aspect of the storage of eggs worthy of considera- 
tion is the relatively long time between the surplus period and 
the period of scarcity. Vegetables may be stored late in the 
fall for winter use, but eggs must be stored early in the spring 
and kept through all the hot months. ... 

The supply and the price of butter. The relation of the 
supply to the price of butter on the Chicago market is shown 
by Figure 4. The weekly supply is shown to range from 
fifteen thousand to more than one hundred thousand tubs 
per week. The months of June and July show the greatest 
supply while the winter months show a scarcity of butter 
coming into Chicago. 

June and July are the natural months for storing butter. 
From November to February is the period of short supply and 
high prices. See figure 5. In order to utilize cold storage as 
a means of equalizing the supply retailed to consumers, 



30 



SEASONAL PRICE- VARIATIONS 



a maximum period of eight or nine months is none too long. 
The demand for butter is relatively stable. Butter is con- 
sumed from day to day with a high degree of regularity. To 
meet the demand butter must be produced in fairly even 
quantities each month in the year or the surplus of one season 
must be stored to meet the shortage of another. In the one 
case more feed must be produced and stored for purposes of 





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Figure 4 (upper part). Butter, receipts and prices, Cliicago market; (lower 
part) Cheese, receipts and prices, New York market; Feb, 1909 to Jan. 1911. 



■winter dairying. In the other the cows may be allowed to 
graze while producing the maximum supply of milk. The 
cost of milk and butter is much lower where grazing is a large 
factor in the food basis of the dairy herd. 

If butter can be stored successfully, there can be little ques- 
tion as to the economic gain resulting from its storage. If 
there is any doubt as to the successful keeping of butter in 
cold storage, great effort should be expended in the solution 



SEASONAL PRICE- VARIATIONS 31 

of this problem, rather than to abolish the storage of butter 
during June and July for consumption in the winter months. 
This is a matter of great moment to the butter producers of 
Wisconsin. Without cold storage our dairy industry would 
have to be reorganized. With the present system of storing 
the surplus, the price of butter as shown in Figure 4, holds 
steady at a fair price during June and July. Without cold 




Figure 5. Cold storage of butter, by months, by one Chicago firm, in percentages 
of total annual storage. 



storage the supply would have to be reduced during that 
period, or the bottom would go out of the market. 

Any influence which retards the storing of butter during 
the natural season of surplus production will increase the 
price of butter during the winter months and give greater ad- 
vantage to the manufacture of butter substitutes. Some of 
the raw material for the manufacture of butter substitutes are 
more abundant in the winter than in the summer months. 
Butter substitutes are made of farm products. To dis- 
criminate against them is to damage one class of farmers for 
the benefit of another class. The substitute, however, should 



32 



SEASONAL PRICE- VARIATIONS 



never be sold for butter. This much the dairyman has every 
right to insist upon. The butter substitute should be sold for 
exactly vrhat it is with its constituents marked on the label. 
The butter substitute will continue to be a strong competitor 
of the inferior grades of butter and may result in a wider 
range in prices between first-class and the inferior grades 
of butter than would otherwise exist. There is little competi- 
tion between first-grade butter and the substitute. The re- 



PER 
CENT 

■ > 


MAR. 


APR. 1 MAY 1 JUNE 

••■"■•I •»»<•»! ..».« 


JULY_^ 1 


AUG. 1 SEPT. 

......1 >».»v. 


OCT 1 NOV. 1 DEC. 1 JAN. 1 FEB. 


PER 






1 
1 

i 

■fl 


■ 1 


1 

i 

i 

i 




IS 






1 


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.UL. 












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a 


6 




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1 
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II 1 

R 1 


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III 
III 
11 1 


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1 APR I M 


»v" 1 JUNE* 


■jULY* 1 


"auq." 1 sc»n 


'oct' 1 Nov'l 'dec." 1 'jAN.* 1 "rfa"! 



Figure 6. 



Milk brought to the Wisconsin University creamery, by months, in 
percentages of total annual quantity, three-year average. 



suit may be that the producers of low-grade butter will have 
to improve their methods or change their occupation. In the 
long run this will be a good thing both for the producer and 
the consumer. 

The supply and price of cheese. The price of cheese 
shows but little variation during the different seasons of the 
year. The supply, however, is produced in the summer 
months, and the bulk of it reaches the market during the sum- 
mer and fall. Figure 4 shows the receipts and the price of 
cheese on the New York market for two years. One character- 



SEASONAL TKICE-VARIATIONS 33 

istic of cheese is that it improves with age and hence the price 
of the stored product is higher than that of the fresh sup- 
ply. This is illustrated in the chart where there are two sets 
of price dots, in April, 1910, the upper being quotations for 
old cheese, the lower for new. Contrast this with the situa- 
tion on the egg market where the reverse is true. (Figure 
2.) 



liAKKETING OF FARM PRODUCTS 

[Theke is here reprinted the greater part of a paper on "Methods 
and Costs of Marketing," by Frank Andrews, in the Yearbook of 
Department of Agriculture (U. S.) for 1909, pp. 161-172.] 

Finding a market; selling in transit. One of the primi- 
tive ways of finding a market is for the farmer to go with his 
wares from house to house, or from store to store, making in- 
quiry until a purchaser is found. An application of this 
simple plan is made on a large scale in the marketing of live 
stock. A car of cattle consigned from a Kansas shipping 
point to Chicago may be unloaded and placed on sale at 
Omaha or Kansas City. In case no sale is made at one of 
these stopping places the stock is forwarded to Chicago. 
This practice is common on most of the important live-stock 
routes of the United States. 

Grain also frequently changes hands at an intermediate 
market through which it passes, and the cars thus sold may be 
forwarded to destinations selected by the new owners. Regu- 
lar quotations of prices are made at Chicago and other cities 
for grain in cars billed through to eastern markets from ship- 
ping points in the Middle West. "Wheat raised in the Cana- 
dian northwest and shipped to the seaboard through North Da- 
kota and Minnesota, for reentry into Canada by way of the 
Great Lakes, often changes hands at Duluth. 

Diversion of shipments. Another method of searching for 
a market is that of diverting a consignment to a destination 
other than the one first named in the shipping papers. An 
illustration of this is the practice common in the grain ex- 
porting business of the Pacific Coast. It is usual for a cargo 
of wheat or barley sent from this coast to Europe to be con- 

34 



MARKETING OF FARM TRODUCTS 35 

signed "for orders" to some port in the British Isles, as 
Queenstown, Falmouth, or Plymouth, After the vessel 
starts, the exporter tries to have a purchaser ready to bargain 
for the cargo when it reaches the port of call. The voyage 
around Cape Horn takes three or four months and this time 
is allowed the exporter for finding a suitable market. On its 
arrival at the port of call, the vessel receives orders as to the 
port at which the grain is to be discharged. 

A similar plan is followed in shipping fruit by rail from 
California to the East. Two of the diversion points on these 
routes are Council Bluffs, Iowa, and Minnesota Transfer, a 
freight yard between St. Paul and Minneapolis. 

Other important instances of this practice of diverting a 
consignment en route are afforded in the movement of fruits 
and vegetables from Southern States. A commission firm, 
whose head office is in Pittsburg, distributes its marketings in 
this way. On receipt of a telegram, say, from a Georgia ship- 
per, announcing that he has a car ready to move, the head of- 
fice of this firm decides at once the general direction for the 
car to go. If the West promises the best markets for the 
next several days, the shipper may be notified to consign to 
Cincinnati, or if the car is to go to an Eastern city, the con- 
signment may be made to Potomac Yard, a freight transfer 
point on the Potomac River opposite Washington, D. C. At 
each of these diversion points a representative of the commis- 
sion firm opens the cars, inspects the contents, and reports the 
results by telegraph or telephone to the Pittsburg office, which 
is kept informed of market conditions in different cities. The 
agent at the diversion point wall then receive orders as to the 
final destination of the car. Among the diversion points 
used for shipments of produce from the Southwest are Kan- 
sas City, St. Louis, and Chicago. 

Public city markets. Public market places are established 
in a number of cities and towns and in these places consumers 
may buy such articles as fruit, vegetables, dairy products, 
poultry, and eggs direct from farmers as well as from dealers. 



36 MARKETING OF FARM PRODUCTS 

In recent years there has been a tendency in some markets, as 
at Baltimore, Norfolk, and Washington, for practically all of 
the stalls to be used by dealers, while the producers occupy 
places along the neighboring sidewalks. 

Market places are owned sometimes by city governments 
and sometimes by private corporations. In Washington, D. 
C, the largest markets are under private ownership, while in 
Baltimore the largest markets belong to the city. In York, 
Pa,, there is one market owned by the city and five by private 
parties. 

At some markets the only accommodations are those af- 
forded by an open square, as one of the markets at Omaha, 
Neb., and one at Richmond, Ind, ; other places have open 
sheds, and still others are furnished with market houses. 
Some of the most noted markets of the United States are held 
under open sheds; the French Market in New Orleans and 
Lexington Market in Baltimore are both of this type. Among 
the numerous cities which have market houses are Pittsburg, 
Pa., Mobile, Ala., Buffalo, N. Y., Erie, Pa., Salem, Mass., 
Washington, D. C, Richmond, Va., Norfolk, Va., and Balti- 
more, Md. 

The charges for space along the curb at some markets range 
from 10 cents to 75 cents per day for each wagon, and by the 
year from $10 to $50 or more. At Atchison, Kan., and also at 
San Antonio, Tex., a charge of 10 cents a day is made for each 
wagon occupying a place in the market, while at Buffalo, N. 
Y., the rate for a one-horse vehicle is 15 cents and for a two- 
horse wagon 25 cents per day, and at Norfolk, Va., these rates 
are respectively 10 and 15 cents. At Richmond, Ind., and 
Omaha, Neb., spaces in the market are sold at aucti(Wi to the 
highest bidder. 

Producers sell in large quantities to dealers and deliver to 
commission men at public market places similar to the ones 
devoted to retail trade, and in many of the retail markets 
wholesale dealing is also done. The public market places of 
Omaha, New York, and Denver are used almost exclusively 



MARKETING OF FARM TRODUCTS 37 

for wholesale trade, and so are wharf markets in Pittsburg, 
Baltimore, and Washington. 

Warehouses. Another institution which aids the producer 
to dispose of his crop is the public warehouse. Illustrations 
of this are afforded in marketing tobacco in Virginia and 
North Carolina, wool from the northern Rocky Mountain 
States, and to some extent rice in Louisiana and Texas. The 
growers, or their representatives, with their produce, meet 
the buyers at these warehouses. The method of operation in 
Virginia may be illustrated by the conditions at Richmond. 
The warehouses here are listed and market begins in the first 
one on the list for a certain day. After sales have been made 
in the first buyers go to the second, and so on throughout the 
list. Planters arrange their tobacco in piles along the floor 
of the warehouse, each pile being identified by a label or card 
attached to it. As the piles are auctioned off each buyer has 
some mark of identification attached to the pile purchased, and 
a record is made by the warehouse authorities. On leaving 
the warehouse the planter obtains his money from the ware- 
house manager, who in turn makes up a bill against each buyer 
for the total amount of tobacco he has bought that day. 
After the last warehouse sale has been made the market is 
continued at the Tobacco Exchange, where dealing is based 
upon samples displayed there. The importance of this system 
may be judged by the quantity of tobacco sold in these ware- 
houses by farmers. The total sales by farmers at twenty-one 
Virginia markets having tobacco warehouses amounted dur- 
ing the nine months ending June 30, 1909, practically the 
entire season, to 116,000,000 pounds; and in the fiscal year 
ending July 31, 1909, the sales by planters in the warehouses 
of forty-five North Carolina markets amounted to 142,000,- 
000 pounds. 

In selling rice at warehouses or on the New Orleans Board 
of Trade, sealed bids are submitted by the buyers and the 
sale is expected to be made to the highest bidder. In cities 
as far west as Chicago it is a common practice to sell fruit in 



38 MARKETING OF FARM PRODUCTS 

warehouses wliieli may be owned by railroads and "used by 
auction companies. A consignment of California or Georgia 
fruit, for instance, will be sent to a commission merchant in 
New York, who will have the fruit sold to his account by the 
auction company. 

Stock yards. The largest wholesale market places open to 
the producers are the stock yards in such cities as Chicago, 
Kansas City, Omaha, and St. Louis. Sales in these stock 
yards may be made direct by the owner of the stock to the 
ultimate purchaser, but it is customary for transactions to be 
made through commission men. 

Diflferent classes of middlemen ; traveling buyers. Selling 
to buyers who come to the farm is practised to some degree in 
many parts of the United States. Traveling hucksters in many 
regions go from farm to farm gathering eggs, butter, poultry, 
calves, and similar commodities, which they sell to shippers, 
jobbers, or retail dealers. Agents of large merchants go to 
farms on the Pacific coast to buy hops, to ranges in the Rocky 
Mountains for wool, to plantations in Louisiana and south- 
eastern Texas to bargain for rice, and to the orchards of the 
apple-producing states east of the Rocky Mountains. The cat- 
tle buyer also is a frequent visitor at many farms, especially 
where stock raising is a secondary industry. 

General merchants. One of the most important persons 
in the distribution of some products is the merchant of the 
town or the rural community. He is often the first receiver 
of such products as eggs, farm-made butter, poultry, wool, 
hides, and sometimes cotton, grain, and hay. It was the 
custom a number of years ago, possibly more so than at pres- 
ent, for a local merchant to credit a planter of cotton or rice 
with supplies for a crop year, and to take a lien upon a 
growing crop to cover the value of the merchandise thus sold. 
In such a case it was frequently the custom for the crop when 
ready for market to be turned over to the merchant by the 
planter, who received the difference between his debt and the 
proceeds from the crop. The importance of the country mer- 



MARKETING OF FARM PRODUCTS 39 

chant as a distributing' factor in some regions is diminishing, 
for he has been supplanted to a greater or less degree by- 
dealers in special products. 

Local buyers of special products. In the regions where 
grain is a staple product the tendency has been for the store- 
keeper to be displaced by the grain dealer and the local 
elevator man. Among other examples of local buyers of spe- 
cial produce are the California fruit packer, who buys from 
growers; the egg and poultry shipper in the Middle West, 
whose purchases are made from country merchants and who 
ships by carload lots to wholesale dealers ; the San Francisco 
wool merchant, who buys on the range and sells in the East; 
the poultry packer in the North Central States, who buys live 
fowls, slaughters them, and consigns to eastern cities ; and the 
"track buyers" of watermelons in the region near San An- 
tonio, Tex., of peaches in Georgia, and of hogs in the corn 
belt. 

Commission dealers. The commission dealer is the agent 
through whom a large amount of produce is sold for farmers 
or country shippers. The commission man usually repre- 
sents the seller, but there are instances where he serves as 
agent of the buyer, as in some sales of live stock to distant 
buyers or in the purchase of Pacific coast hops for eastern 
dealers. 

In addition to serving as agent in making a sale, the com- 
mission man may advance money to a producer or to a country 
buyer, as when a live-stock commission firm loans money to 
feeders or when a grain-commission firm supplies a local grain 
dealer with sufficient cash to begin his season 's purchases. An- 
other phase of commission dealing is that engaged in by rice 
and cotton factors, who advance money on crop liens, and to 
whom these products are frequently consigned to be sold on 
commission. In some States, for instance in South Carolina, 
banks are reported to be taking the place of the cotton factors 
in making loans, and the presence of buyers and neighboring 
mills enables planters sometimes to market their cotton with- 



40 MARKETING OF FARM PRODUCTS 

out the aid of factors. Another class of factors are those in 
the Baltimore tobacco trade, who receive consignments, for in- 
stance, from farmers in Maryland and Ohio, and who sell to 
exporters. 

Commission for selling.'^ Eates of commission for selling 
fruits and vegetables may range from 5 to 10 per cent, of the 
gross proceeds of sales. A cooperative organization of farm- 
ers is sometimes able to retain part of this selling commission 
for its own use. The members of one southern fruit associa- 
tion paid for selling their products 10 per cent, of gross pro- 
ceeds, of which generally 6 per cent, was given the northern 
commission dealer and 4 per cent, was retained in the treasury 
of the association. There are numerous other instances of 
commissions based upon proceeds of sales, among which may 
be mentioned the charges for selling rice at New Orleans and ^ 
clover seed at Milwaukee. 

For selling grain and live stock at large markets the rates 
of commission are based generally upon the quantity sold and 
not upon proceeds of the sales. The rules of the Minneapolis 
Chamber of Commerce fix the rate for selling wheat, barley, 
or rye at 1 cent per bushel, corn or oats at one-half cent per 
bushel, and hay at 50 cents per ton. These rates apply to 
produce received under usual conditions. About the same 
charges prevail in other large markets. 

In the tobacco warehouses of Virginia and North Carolina 
auctioneers' charges are determined by the number and weight 
of piles sold, and the *' commission agents" who buy hops 
for wholesale dealers are frequently paid from one-fourth to 
one-half cent per pound. 

Exporters. The exporter's business has some points in 
common with that of the local buyer in domestic trade; both 
classes of middlemen obtain their wares from sources rela- 
tively near at hand, and sell them in a distant market, either 
direct or through commission dealers. The exporter has to 
keep informed not only concerning the commercial regulations 

1 [Paragraphs from p. 162, here inserted.] 



MARKETING OF FARM PRODUCTS 41 

and market conditions of various countries, but also in regard 
to freight rates along the various lines of transportation over 
which his goods are apt to be carried. The fluctuations of 
freight rates, especially by v^^ater, make the cost of transporta- 
tion lowest sometimes over one route and sometimes over an- 
other. In shipping wheat from Nebraska to Liverpool the 
grain may be sent through one of eight or ten large seaports 
ranging from Montreal around the coast to Galveston ; and at 
a number of these ports tramp ships may be bidding against 
the regular lines for cargo. In ease New York is selected 
as the port of shipment, the grain may be sent thither direct 
from Nebraska, or it may be transferred to a lake steamer at 
Chicago, to be reloaded at Buffalo either on canal boats or rail- 
road cars. 

In the grain business of the Pacific Northwest and in the 
cotton trade of the South it is not uncommon for the same 
firm that buys from the farmer to sell to the European miller. 
A grain exporter of Portland, Taeoma, or Seattle sometimes 
owns as many as 200 warehouses at different country railroad 
stations, and his agents at these stations buy direct from the 
farmers and consign to the seaport; while in Europe agents 
or correspondents of the same firm seek out buyers for the 
grain. But east of the Rocky Mountains the exporter of 
wheat, while he may sell through his representatives to foreign 
mills or dealers, in many instances does not buy either from 
the producer or the country grain dealer. His supply is often 
furnished by commission men or large dealers. 

In addition to the five classes of middlemen just discussed, 
others of importance in the distribution of farm products are 
the jobber, who buys and sells in wholesale lots, and the retail 
dealer, the last of the series of middlemen who handle the 
commodity on its way from the producer to the consumer. 

Direct sales without aid of middlemen. Common in- 
stances of the producer selling direct and delivering to the 
door of the consumer occur in the marketing of milk, butter, 
eggs, poultry, fruits, vegetables, hay, and other farm products. 



42 MARKETING OF FARM PRODUCTS 

Milk producers in the neighborhood of Erie, Pa., through their 
organization, deliver milk direct to consumers. Numerous 
poultry raisers sell exhibition stock direct to other poultry 
raisers. Eggs for hatching are also sold in this way. Eegis- 
tered cattle are often sold at auctions, held periodically by the 
owners. Retail sales of fruit, vegetables, poultry, eggs, and 
dairy products direct by producer to consumer are made also 
in public market places. 

In a sense, a mill or a factory may be regarded as a con- 
sumer. An old instance of the producer selling in wholesale 
lots direct to the consumer is that of the farmer taking his 
grain to a near-by mill. A sale of sugar beets to a neighbor- 
ing factory is another example of direct bargaining between 
producer and consumer ; so is the sale and delivery of milk to 
a creamery, apples to an evaporating establishment, and fruits 
and vegetables to neighboring canning houses. 

Selling at wholesale direct to consumer is illustrated also by 
a plan recently adopted by wool growers of the northern 
Eocky Mountain region. Large warehouses are established at 
Chicago and Omaha to which wool is consigned to be sold by 
the growers or their representatives. Manufacturers as well 
as dealers are among the buyers, so that part of the sales are 
made direct by the growers or their agents to consumers. Not 
only are direct sales by producer to manufacturer made in the 
warehouses, but on the range itself, for since the establishment 
of warehouses manufacturers and dealers have continued to 
send some of their buyers to the range. 

One of the prominent woolgrowers of Wyoming reports that 
since the establishment of the large warehouses prices on the 
range have been much better. For the sake of supporting the 
warehouses the stockholders agree to pay into the association 
a certain percentage of their gross sales of wool, whether sold 
on the range or in the warehouses. This method of support- 
ing a cooperative institution is adopted also by the Georgia 
Fruit Growers' Exchange. 

Transfers through one middleman. A large number of 



MARKETING OF FARM PRODUCTS 43 

transactions are made in which only one middleman assists in 
the transfer from producer to consumer. A common example 
is that of the town merchant who buys produce from farmers 
and sells it to consumers. 

Among the other instances of a single middleman interven- 
ing between producer and consumer may be noted the com- 
mission man at a large market who receives consignments of 
live stock from farmers and sells to packers ; the factor to 
whom the planter consigns his rice or cotton and from whom 
purchases are often made by millers; the warehouseman who 
manages the sale of a Virginia planter's tobacco; and the 
"line," or system, of elevators, which buys grain from farm- 
ers and sells to millers. Pennsylvania tobacco is often bought 
at the farm by a dealer who sells to manufacturers. 

It is a common practice in a number of cities — for instance, 
New York, Philadelphia, and Washington — for milk to be 
handled by one middleman, namely, the city retailer, who 
buys direct from the producer. A considerable part of the 
supply of New York City is delivered at country shipping 
points to stations or "creameries" owned by New York deal- 
ers, who sell in the city at retail. 

An organization which brings the grain producer nearer 
the great mills is the farmers' elevator. The plan of its opera- 
tion has some features similar to that of the wool warehouses 
of Chicago and Omaha. Farmers cooperate in building an 
elevator and in employing a manager. 

Marketing through two middlemen. The intervention of 
two middlemen between producer and consumer is a common 
occurrence. The farmer may consign to a distant commission 
man or sell to a local dealer, and the next transaction of the 
series may be the sale to a retail merchant whose customers 
are consumers. A common way of marketing live stock is for 
the farmer to sell to a buyer who ships to a commission mer- 
chant at a large packing center, where the animals are sold 
frequently to packers. Fruits and vegetables are marketed 
often through the aid of two middlemen, the city commission 



44 MARKETING OF FARM PRODUCTS 

dealer and the retail merchant. Two middlemen are involved 
also in some sales of produce made by farmers ' cooperative so- 
cieties; the first, unless the sales manager of a society be 
classed as a middleman, being the wholesale or the commission 
dealer, and the second the retail merchant. 

The milk supply of Boston is distributed largely through 
two successive middlemen, the wholesale and the retail dealer ; 
and another series of two middlemen consists of the traveling 
huckster in Massachusetts and elsewhere, who buys poultry 
from farmers and sells to retail merchants. Hop growers of 
the Pacific coast frequently sell direct to commission men who 
buy for large dealers, and these dealers in turn make part of 
their sales to brewers. 

Transactions involving three or more middlemen. A 
series of three middlemen may include, first, the local buyer 
or shipper; second, the commission dealer or the wholesale 
merchant ; and third, the retail merchant. Watermelons from 
the region of San Antonio, Tex., are reported to be distributed 
in considerable quantities through such a series of dealers. 
Traveling hucksters in Missouri buy poultry from farmers and 
sell occasionally to merchants or to commission firms, who in 
turn include among their customers some retail dealers. 
Apple dealers in this country purchase the fruit from grow- 
ers and sell to United States agents of German importers. 
The third in this series of middlemen is the retail dealer in 
Germany. 

In the sale of fruit by auction, as is common in large cities 
east of the Mississippi River, the auctioneer is an additional 
middleman. He may sell for a commission dealer to whom 
the consignment may have been made by a country buyer ; and 
the purchaser at such an auction may be a jobber, who in turn 
sells to a retail merchant. Five middlemen are thus con- 
cerned in such a transaction. 

Another instance of a long series of middlemen may be had 
in some exports of wheat from North Dakota to England. 
The grain may be bought first by a country grain dealer, con- 



MARKETING OF FARM RRODUCTS 45 

signed to a middleman at Duluth, bought there by an ex- 
porter, who in turn sells through his European agent to a 
foreign grain dealer. The last of the series of transactions 
may be the sale by the foreign merchant to the miller. Hay, 
in many parts of the country, is frequently bought by a local 
merchant who sells through a commission man to a wholesale 
dealer. Or again, the commission man may sell to an ex- 
porter who ships direct to an importer in Cuba, and one or 
more additional sales may be made before the hay reaches the 
last purchaser. 

Onions raised in Kentucky are sometimes bought by a local 
merchant and shipped to Louisville ; here they may be put in 
sacks and consigned to a New York wholesaler or a com- 
mission man, who in turn sells to a New York retailer. Eggs 
and poultry frequently pass through the hands of at least four 
middlemen. 

The marketing of clover seed is an example of a transfer 
from one farmer to another through a number of middlemen. 
The first middleman may be an Indiana shipper who consigns 
to a commission dealer in Toledo; here the seed may be pur- 
chased by a merchant and shipped to a wholesale dealer in a 
distant city; the last middleman in this course of distribu- 
tion may be a country storekeeper or a city dealer in agricul- 
tural supplies. 

Terms of sales. Eeference is made in other parts of this 
article to conditions affecting payments for produce. Cash 
payments, as has been said, are most general, but when a 
farmer is to make a delivery to a distant purchaser, it is often 
the practice for the payment to be made by means of a draft 
attached to a bill of lading. By selling for a definite price 
fixed before the sale is made, the farmer knows at the time of 
sale the exact amount he is to receive, but he may be at a dis- 
advantage owing to lack of competition among buyers or to 
his failure to keep posted concerning market conditions. On 
the other hand, if he ships his produce to be sold on commis- 
sion, he risks being disappointed with the proceeds of the sale. 



46 MARKETING OF FARM PRODUCTS 

Some of the disadvantages of selling at or near the farm are 
being overcome by improved conditions which open to the 
farmer other markets in ease the one at home is not satisfac- 
tory. The use of the telephone enables him to know the latest 
market news, and the service of a cooperative selling associa- 
tion makes it easier for him to take advantage of favorable 
prices in distant markets. 

Some produce is sold in advance of the harvest; for in- 
stance, in New York, Maryland, and IMichigan vegetables are 
grown for canning houses under contracts made sometimes as 
early as the preceding midwinter. The terms of these eon- 
tracts vary. According to some of them the canner furnishes 
the seed and fertilizer and agrees to make advances of money 
during the season and a final settlement at the end. Con- 
tracts providing for the sale of three successive crops at a fixed 
price are reported to have been made in 1908 with some hop 
growers of Washington and Oregon. 

Cooperative selling associations. The number of farmers' 
cooperative associations through which produce is marketed is 
increasing continually. Various fruits and vegetables, grain, 
tobacco, peanuts, rice, and other products are sold by the 
agents of such associations. In the State of Colorado alone 
there were in 1907 at least thirty-three such organizations and 
the products handled by them included cantaloupes, peaches, 
honey, potatoes, and miscellaneous fruits and vegetables. A 
number of California associations have united to form larger 
bodies through which sales are made, while the local organi- 
zations pack and load the produce. 

At least two produce exchanges have been conducted suc- 
cessfully for a number of years by truck growers of the penin- 
sula lying between the Chesapeake Bay and the Atlantic 
Ocean. The cranberry crop is marketed largely through farm- 
ers' organizations, and similar associations, too numerous to be 
listed here, are improving conditions of marketing in other 
parts of the United States. The extent to which the coopera- 
tive movement among farmers is distributed may be illus- 



MARKETING OF FARM PRODUCTS 47 

trated by the apples from Hood River, Ore., wliieh are 
marketed iu this way ; fruits and vegetables from Yuma Val- 
ley, Ariz. ; celery from Florida, cantaloupes from Tennessee, 
onions from central and western Texas, tobacco from Ken- 
tucky, grain from Minnesota and North Dakota, rice from 
Texas, peaches from Georgia, vegetables from Louisiana, and 
various articles from jMichigan, in addition to a large number 
of products from California. 

Two of the important results of cooperation in marketing 
have been the shipment of better grades of fruits and vege- 
tables, and the command by the farmers of a greater influence 
in the market on account of large quantities of produce being 
controlled by a single authority. 



FARM PRODUCTS AND CONSUMERS' PRICES 

[The following passages are from the report of the Secretary of 
Agriculture (U. S.) for the year 1910, pp. 9-28.] ' 

Production of 1910. Year after year it has been my privi- 
lege to record ' ' another most prosperous year in agriculture. ' ' 
Sometimes the increased prosperity has been due to weather 
unusually favorable to agriculture, sometimes to higher values 
caused either by a greater yield or demand or by greater 
money returns due to a scant production ; but usually the ad- 
vance in farmers ' prosperity has been in spite of various draw- 
backs. It would seem that this country is so large in extent 
and has such varied climate, soil, and crops that no nation- 
wide calamity can befall its farmers. Combined with this 
strong position in agriculture, the nation may now begin to 
derive increased confidence in its agriculture because of im- 
provements that are permeating the whole country in conse- 
quence of a grand movement sustained by the National Depart- 
ment of Agriculture and the various State agencies. 

Value of all products. Nothing short of omniscience can 
grasp the value of the farm products of this year. At no time 
in the world's history has a country produced farm products 
within one year with a value reaching $8,926,000,000, which is 
the value of the agricultural products of this country for 
1910. This amount is larger than that of 1909 by $305,000,- 
000, an amount of increase over the preceding which is small 
for the more recent years. 

The value of farm products from 1899 to the present year 
has been progressive without interruption. If the value of 
that census year be regarded as 100, the value of the agri- 
cultural products was as follows : 

48 



FARM PKODUGTS AND PRICES 49 

1899 100.0 190,3 124.8 1907 158.7 

1900 106.4 1904 129.8 1908 167.3 

1901 112.7 1906 143.4 1909 1S2.8 

1902 119.1 1905 133. 1910 189.2 

The value in 1910 is almost double the value of the crops of 
the census year eleven years preceding. During this period 
of unexampled agricultural production, a period of twelve 
years during which the farmers of this country have steadily 
advanced in prosperity, in wealth and in economic independ- 
ence, in intelligence and a knowledge of agriculture, the total 
value of farm products is $79,000,000,000. . . . 

Rising yields per acre [Page 27]. Dividing the period 
from 1866 to 1909 into four decades and a succeeding short 
period of four years, the yield per acre of corn is shown by a 
study made in the Bureau of Statistics to have declined 2.3 
per cent, from the first decade to the second, declined 8.2 per 
cent, from the second to the third, increased 7.7 per cent, from 
the third to the fourth, and increased 7.1 per cent, from the 
fourth decade to the succeeding four-year period. 

For wheat an even better showing is made, since the figures 
show a continuous increase in yield per acre, namely, 3.4 per 
cent, from first decade to second, 3.3 from second to third, 
6.3 from third to fourth, and 9.6 from fourth decade to final 
four-year period. 

For cotton, the first figure, 2.8, is a decline, but the rest are 
increases, namely, 2.6, 3.8, and 0.3. 

For tobacco, the first figure, 3.4, is an increase, the second 
2.0, is a decline, the third, 5.2, is an increase, and so also is 
the last, 9.7. 

Similar facts are shown for six other leading crops, namely, 
oats, barley, rye, buckwheat, hay, and potatoes. Not one of 
the ten crops named declined in yield per acre from the third 
decade to the fourth, while oats was the only one to show a 
decline from the fourth decade to the last period of four years. 

The evidence is very plain that the yields per acre of our 
crops are now increasing, and if the facts were assembled in 

4 



50 FARM PRODUCTS AND PRICES 

detail for the States, it would be found that the percentage of 
increase in yield in many of them is greater than the percent- 
age of normal increase in population ; that is, the increase by 
births over deaths in the old native element. Such is the fact 
with regard to wheat for the fourth decade, as compared with 
the preceding one, in twenty-six States, and two of the States 
are all but ready to join them. In fourteen States corn pro- 
duction per acre has increased faster than the normal increase 
of population and this is almost true of five more States. The 
number of States in this list in the case of barley is 21 ; rye, 
30 ; buckwheat, 19 ; cotton, 3 ; potatoes, 24 ; hay, 35 ; and more 
or less States are almost ready to enter this list in the case of 
all crops. 

A demand that is more difficult to fulfil in production per 
acre is for an increase that equals or exceeds the actual in- 
crease of population, including the immigrants and that due 
to the temporary high birth rate of the foreign born. But, 
notwithstanding the fact that this difficulty is greater in the 
United States than it is in all other countries that have prac- 
tically ceased to take much new land into cultivation, many 
of the States of this nation are each maintaining an increase 
of production in the case of one or more prominent crops that 
is greater than the actual increase of population. Ten States 
are doing this in the case of corn ; for wheat the number is 22 ; 
for oats, 16 ; for cotton and tobacco, 1 each ; for rye, 21 ; for 
potatoes, 15 ; and for hay, 25. 

We cannot look for any other result than that the yields per 
acre of all our crops shall increase at an even faster rate in the 
future, in view of the intense interest with which our people 
are turning their attention toward agricultural improvement. 
If there are certain forces at work which, if unchecked and 
made more prevalent, will in the future compel us to bid 
against the world for food, the counteracting forces have 
nevertheless been already set in motion, with the promise of 
increasing effect. 

Farmer's share of consumer's cost [page 19] . High prices 



FARM PRODUCTS AND TRICES 51 

was one of the subjects oh' my annual report of 1909. It was 
shown that for many years previous to about 1897, or a little 
later, the prices of farm products received by farmers were 
even less than the cost of production, and often little if any 
above that cost, so that during a long period of years the 
farmer was not thriving. It was shown also that in the up- 
ward movement, which began about 1897, the prices received 
by the farmer have advanced in greater degree than those re- 
ceived by nearly all other classes of producers. That this 
should have been so was merely a matter of justice to the 
farmer to equalize the reward of his efforts with the rewards 
in other lines of production. 

Increase of beef prices. The price received by the farmer 
is one thing ; the price paid by the consumer is far different. 
The distribution of farm products from the farm to consumers 
is elaborately organized, considerably involved and compli- 
cated, and burdened with costly features. These are exem- 
plified in my report for 1909 by a statement of the results of 
a special investigation into the increased cost of fresh beef 
between the slaughterer and the consumer. 

It was established that in the North Atlantic States the con- 
sumer's price of beef was 31.4 per cent, higher than the whole- 
sale price received by the great slaughtering houses; 38 per 
cent, higher in the South Atlantic States; and 39.4 per cent, 
higher in the Western States. The average for the United 
States was 38 per cent. It was found that the percentage of 
increase was usually lower in the larger cities than in the 
smaller ones and higher in the case of beef that is cheap at 
wholesale than of high-priced beef. It was a safe inference 
that the poorer people paid nearly twice the gross profit that 
the more well-to-do people paid. 

The farmer and milk prices. Another investigation into 
the increase of prices in the process of distribution was made 
in the last week of June, 1910. This time the object was to 
discover what fraction of the consumer's price was received by 
the farmer. It was a time of high prices, of high cost of 



52 FARM PRODUCTS AND PRICES 

living, and the aim was to ascertain to what extent the farmer 
received a return out of the high consumer's cost of farm 
products. 

The investigation covered seventy-eight cities scattered 
throughout the United States, and the information was con- 
tributed by a large number of the Department's crop corre- 
spondents and by some of its special agents who made inquiries 
in all of the seventy-eight cities. The cities were divided into 
geographical groups for the purpose of computing averages, 
and these were combined into an average for the United States, 
all after proper weighting according to importance. 

Milk was one of the commodities under investigation — a 
food product indispensable to a large fraction of the families 
of the nation, and now a costly one to all consumers. While 
it is true that the dairyman is receiving considerably more 
for his milk than he did before the present era of high prices, 
yet it was discovered in this investigation that throughout the 
United States he receives a scant 50 per cent., or one-half of 
the price paid by the consumer. The other half goes to the 
railway company for carriage, to the wholesale milk dealer, if 
there is one in the chain of distribution, and to the retailer who 
delivers at the consumer's door. 

Freight charges for carrying milk vary according to dis- 
tance, but their average may be regarded as approximately 
about 7 per cent, of the consumer's price. With the farmer 
receiving about 50 per cent, of that price and the railroads 
7 per cent, the remaining 43 per cent, of the consumer's price 
is received mostly by the retailer. 

The milk wagon of the retailer has a long route. It stops 
at a house or two in one city block, perhaps passes several 
blocks without stopping, and so proceeds to serve customers 
thinly distributed along a route of miles. At the same time 
the milk wagons of other retailers are covering various por- 
tions of the same route, and so there is a great waste of effort 
and of expense in the distribution. 

The division of States in which the cost of distributing milk 



FARM PRODUCTS AND TRICES 53 

from i3roduc'er to consumer is the most is the North Central 
group, iu which producers receive 44 per cent, of the prices 
paid by the consumer. Next in order follow the Western 
States with 47 per cent., the North Atlantic States with 53 per 
cent., the South Central States with 55 per cent., and the South 
Atlantic States with 57 per cent. 

The average price paid by consumers in the seventy-eight 
cities is almost exactly 8 cents per quart. In the North At- 
lantic and North Central States the average is 7.5 cents; in 
the Western States, 8.9 cents; in the South Central, 9.1 cents; 
and in the South Atlantic States 9.3 cents. These prices are 
for the last week in June, 1910. 

Size of retail unit, and of farmer's percentage [page 22], 
The general fact was that the producer's percentage of the 
consumer's price diminished as the quantity sold at retail was 
smaller. For instance, the apple grower received 55.6 per 
cent, of the consumer's price when the consumer bought by 
the bushel and 66 per cent, when the purchase was by the 
barrel. When the consumer bought corn by the bushel, the 
farmer got 70.6 per cent, of the price, but when the purchase 
was by the barrel the farmer received 81 per cent. The 
strawberry grower received 48.9 per cent, of the consumer's 
price in purchases by the quart and 75.9 per cent, in pur- 
chases by the crate, A still better illustration is found in 
the case of onions. In [purchases made] a peck at a time, the 
farmer received 27.8 per cent, of the retail price ; in purchases 
of a barrel, he received 58.3 per cent. ; and in purchases by 
the 100 pounds, he received 69 per cent. So in the case of 
oranges, when the purchase was by the dozen the grower re- 
ceived 20.3 per cent, of the consumer's price, whereas when 
the purchase was by the box the grower received 59.3 per cent. 

Price gains from consumer's point of view [page 24], In 
the consideration of this subject so far, the aspect has been 
that of the producer ; the farmer thinks of the price that the 
consumer pays for farna products and compares with them 
the price that he himself receives. While the farmer is look- 



54 FARM PRODUCTS AND PRICES 

ing forward with regard to the prices of his products, the con- 
sumer is looking backward, and so regards the prices that he 
pays as increases upon what the farmer gets. This aspect of 
the matter may now be worth some attention. 

It is establislied by the investigation of this Department 
made last June that the milk consumers of seventy-eight cities 
paid for milk an increase of 100.8 per cent, above the price 
received by dairymen; in other words, the farmer's price was 
fully doubled. The lowest increase among the geographic di- 
visions was 75.5 per cent, in the South Atlantic States and the 
highest was 111.9 per cent, in the Western States. 

In the purchase of butter the consumer pays 15.8 per cent, 
above the factory price in the case of creamery prints, 15.6 
above in the case of factory tub, and 13.3 per cent, above the 
factory price in the ease of renovated butter. The percent- 
ages of increase among the five divisions of States do not 
vary much from the averages for the United States. 

Some large percentages of increase of prices were found by 
the Industrial Commission — 135.3 per cent, for cabbage 
bought by the head ; 100 per cent, for melons bought by the 
pound, for buttermilk sold by the quart, and for oranges sold 
by the crate; 260 per cent, for onions bought by the peck; 
400.4 per cent, for oranges bought by the dozen; 111.1 per 
cent, for strawberries bought by the quart; and 200 per cent, 
for watermelons sold singly. 

There were many cases of increase of consumer 's price over 
farmer's price amounting to 75 per cent, and over, but under 
100 per cent., and among these were 90.5 per cent, for apples 
bought by the barrel and 80.6 per cent, for apples bought by 
the box; 75 per cent, for chickens bought by the head; 83.4 
per cent, for onions bought by the pound ; 80.5 per cent, for 
potatoes bought by the bushel; 88.8 per cent, for poultry in 
general bought by the pound ; 95.8 per cent for strawberries 
bought by the box; 82.5 per cent, for sweet potatoes bought by 
the bushel. 



FARM TRODUCTS AND PRICES 55 

It may be worth while to extend the list of farm products 
that are sold to consumers at a large increase above farm 
prices. In the class of commodities selling for an increase of 
price amounting to 50 per cent, and over but under 75 per 
cent, above farm prices, may be mentioned the following in- 
creases: 61.8 per cent, for cabbage bought by the pound; 66.7 
per cent, for celery bought by the bunch, turnips and parsnips 
bought by the bunch, and green peas bought by the quart; 
54.4 per cent, for chickens bought by the pound ; 50 per cent 
for eggplants bought by the crate; 68.4 per cent, for onions 
bought by the bushel; 68.7 per cent, for oranges bought by 
the box; 60 per cent, for potatoes bought by the peck; 59.8 
per cent, for turkeys bought by the pound. 

The import price of coffee in the fiscal year 1910, which 
was 8 cents a pound, after the increase to 20 and 35 cents per 
pound to the retailer, has risen in price to the consumer from 
150 to 337.5 per cent. So with tea of the same fiscal year; its 
import price of 16 cents per pound, after being increased to 
50 to 70 cents per pound, cost the consumer an advance of 
212.5 to 337.5 per cent. 

Before assigning to middlemen the various increases of 
prices, it is proper to deduct the percentage due to freight 
rates. The freight charge for milk received in New York is 
about 18 per cent, of the producer's price, and in Chicago 
about 14.7 per cent. Of the import price of coffee, the ocean 
freight charge from Rio Janeiro is 3.6 per cent. The per- 
centages of farm price for which freight charges stand in the 
United States may be estimated at approximately 0.9 of 1 per 
cent, of the factory price for butter; 1.2 per cent, of the farm 
price for clover seed; 1.6 per cent, for cotton; 1.3 per cent 
for eggs; 13.6 per cent, for apples; 4.8 per cent, for beans; 
14.8 per cent, for potatoes ; and 5 per cent, for sweet potatoes. 
The rates for oats, rye, barley, and wheat are nearly the same, 
ranging from 6 per cent, for oats to 7.3 per cent, for barley 
and rye. The rate for corn is 9.2 per cent, and the average 



56 FARM PRODUCTS AND PRICES 

for all grain is 7.7 per cent. For hay the percentage is 15.8 
per cent. ; for cattle and hogs, 2.5 per cent. ; for live poultry, 
4.5 per cent. ; and for wool, 0.6 of 1 per cent. 

The farmer's task. From the details that have been pre- 
sented with regard to the increase of the prices of farm 
products between farmer and consumer, the conclusion is 
inevitable that the consumer has no well-grounded complaint 
against the farmer for the prices that he pays. The farmer 
supplies the capital for production and takes the risk of his 
losses; his crops are at the mercy of drought, and flood, and 
heat, and frost, to say nothing of noxious insects and blighting 
diseases. He supplies hard, exacting, unremitting labor. A 
degree and range of information and intelligence are de- 
manded by agriculture which are hardly equaled in any other 
occupation. Then there is the risk of over-production and 
disastrously low prices. From beginning to end the farmer 
must steer dexterously to escape perils to his profits and 
indeed to his capital on every hand. At last the products are 
started on their way to the consumer. The railroad, gener- 
ally speaking, adds a percentage of increase to the farmer's 
prices that is not large. After delivery by the railroad the 
products are stored a short time, are measured into the various 
retail quantities, more or less small, and the dealers are rid of 
them as soon as possible. The dealers have risks that are 
practically small, except credit sales and such risks as grow 
out of their trying to do an amount of business which is small 
as compared with their number. 

The problem for consumers. After consideration of the 
elements of the matter, it is plain that the farmer is not 
getting an exorbitant price for his products, and that the cost 
of distribution from the time of delivery at destination by 
the railroad to delivery to the consumer is the feature of the 
problem of high prices which must present itself to the con- 
sumer for treatment. 

Why do not consumers buy directly from the farmers? 
A distribution of farm products in this simple way has already 



FARM PRODUCTS AND PRICES 57 

begun in England, where cooperative organizations of farmers 
are selling by direct consignment to cooperative organizations 
of consumers in cities. 

Farmers' cooperative-selling associations are numerous in 
this country, but cooperative-buying associations among the 
people of cities and towns are few. Aside from buying asso- 
ciations maintained by the farmers, hardly any exist in this 
country. It is apparent, therefore, that the consumer has 
much to do to work out his own salvation with regard to the 
prices that he pays. Potatoes were selling last spring in some 
places where there had been an overproduction for 20 cents 
and in some places for even 9 cents per bushel at the farm, 
while at the same time city consumers in the East were paying 
50 to 75 cents per bushel, although there was nothing to pre- 
vent them from combining to buy a carload or more potatoes 
directly from the grower and for delivery directly to them- 
selves. 



AN UNSALABLE FOOD-SURPLUS 

[The growth of city markets where all goods are handled by middle- 
men, and the buyer at retail is unacquainted with the conditions of 
production and little able to judge of quality, often brings about odd 
situations and what appear to be illogical prices. Many a daily paper 
will furnish an example; here is one from the New York Times of June 
1, 1912. Such cases are popularly explained as due to "monopoly" 
trying to keep up prices by destroying the surplus. Cases of monopoly 
action similar to this occur, but are the conditions in this case "mo- 
nopolistic"?] 

While the cost of living is mounting steadily and beef is 
bringing civil war prices, tons of fresh food fish are being 
shipped daily from Fulton Market to Barren Island to be 
made into fertilizer. For the last three weeks a steamer, 
loaded with newly caught porgies, sea bass, butterfish, weak- 
fish, and other varieties, has made one or more trips a day from 
the offal dock. On some days more than 200 barrels of fish in 
good condition have been destroyed — enough to supply 40,000 
meals. On these days more fish have gone over to Barren 
Island than have been sold to the retail trade in New York City. 

Wholesale dealers at the Fulton Market say they have to 
destroy the fish because in this city the people are afraid to 
buy it at low prices. Exceptionally large catches are reported 
all the way from Cape Henry, Va., to Seabright, N. J., a 300- 
mile stretch of coast. One Fulton Market dealer said yester- 
day that the supply of fish this year is 75 per cent, larger than 
the average season. Although nearly all of this fish is han- 
dled in New YorJf Harbor, the consumer in New York City is 
benefited but little. One dealer estimated yesterday that not 
more than 2 per cent, of the fish received here is eaten in 
New York City. Other dealers placed the percentage a good 

58 



AN UNSALABLE FOOD-SURPLUS 59 

deal higher, but they ag:reed that, while fish is shipped from 
New York as far West as Chieagro and St. Louis, and sold 
there cheaper and in greater quantities than usual, high prices 
prevail in this cit}'-, and the quantity sold here is about the 
same as in ordinary seasons. 

One wholesale fish dealer yesterday gave an explanation of 
this. 

"The chief reason that good eating fish has to be destroyed." 
he said, "is that dealers who place it on sale at low prices can- 
not sell it. The average woman doesn't know how to judge 
the condition of a fish, and her only test of its quality is the 
price. If it is lower than she is in the habit of paying she is 
afraid the fish is stale. She won't buy unless the dealer 
charges two or three times what would be a fair price. Her 
impression often is that, if the fish were really fit to eat, it 
would have been put into cold storage, instead of being sold 
cheap. This is a mistake, for cold storage is a costly process 
and we do not use it any more than is necessary. We can 
much better afford to sell fish outright at a lower price. At 
present we are paying 25 cents a barrel to have good fresh fish 
destroyed, but we lose less that way than we would by putting 
it into cold storage. 

"Take bluefish, for example. It is considered a luxury and 
is much in request at present. For several years it had almost 
disappeared from these waters. Last year it returned, and 
this season it is being caught in imprecedented quantities. 
We sell it from 4 to 8 cents a pound. The retailer sells it all 
the way from 10 to 30 cents a pound. Those who sell it so low 
as 10 cents are the peddlers and small shopkeepers. While 
their fish is the same in every respect as the other, it is never- 
theless under suspicion because of its cheapness. Very little 
of it goes at 10 cents a pound. 

"Another factor is the belief of many people in this city 
that fresh fish can be obtained only on Friday. They think 
what is on the market any other day is stale or left over. As 
fish day only comes once a week the retailer has only one good 



60 AN UNSALABLE FOOD-SURPLUS 

selling day in the week, and lie has to make a larger profit, and 
he sells at an advance of from 300 to 500 per cent. 

"We would rather sell at any figure than have it wasted. 
It costs something like 2 cents a pound to catch the fish we 
send over to Barren Island and it costs 25 cents a barrel to get 
rid of it in this manner. It would be cheaper to give it away. 
We cannot put it into cold storage because that would mean 
a greater loss. It costs three-quarters of a cent a pound to 
freeze fish and a quarter of a cent a pound for every month it 
is in cold storage. And only a limited supply of cold storage 
fish can be disposed of. 

' ' Weakfish sells at wholesale from 2 to 5 cents a pound ; at 
retail from 8 to 20 cents. Butterfish sells at wholesale from 
11/4 cents a pound to 4 cents ; at retail from 8 to 20 cents. The 
difference runs about the same between the wholesale and re- 
tail prices of other varieties. The country peddler buys fish at 
5 cents a pound and sells it at 10 cents, while in this city the 
retailer, who buys at the same price, less the freight, sells at 
20, 25, and 30 cents a pound. They prefer, even in excep- 
tional seasons like this, to buy in small quantities and sell at 
high prices, and this policy is favored by the attitude of the 
consumers who suspect anything on sale at a lower price than 
they are accustomed to pay. This season a fish peddler could 
go about with the very best of fish and make a good profit offer- 
ing it at 25 cents a panful, but, if he did, the consumers would 
be so alarmed that they would demand an investigation by the 
health authorities. 

"The public is capricious in another respect. It has a taste 
for winter fish in summer and for summer fish in winter. 
When fish is in season, at its very best in condition and flavor 
and at its lowest price, the demand usually shifts for some 
other variety that probably is costlier and poorer in quality. ' ' 



RENTALS OF URBAN REAL ESTATE 

[The Principles of City Land Values, by Richard M, Hurd, presi- 
dent tho Lawyers' Mortgage Insurance Co., New York, 1903, contains 
numerous illustrations, maps of cities, diagrams, and comparisons of 
values based on wide and painstaking study. The extracts which are 
printed in this book with the permission of the author, are from the 
latter part of book, and give the general conclusions (page 122).] 

Basis of gross business rents. While gross rents are fixed 
by competition, the question arises, How do bidders determine 
what they can pay ? The basis differs radically between busi- 
ness property which earns income for the occupant as well as 
the owner, and residence property which for the occupant 
consumes income ^ only. 

The gross rents of business property are gaged from the 
economic standpoint, these being in the long run the normal 
proportion of what property can earn for the tenant. The 
proportion of gross receipts which a shopkeeper pays as rent 
varies according to his ability as a tradesman, the character 
and class of his business, and the location, a fair average 
being from 20 to 40 per cent. The better the location for 
retail trade, the higher the proportion of receipts paid for the 
rent. For retail trade the location and the consequent ad- 
vertising perform the vital function of selling the goods, and 
the^ shopkeeper can largely devote his energies to selecting 
what the people want. Similarly, though in a less marked 
way, prominent otSce buildings help to advertise the business 
of their tenants. On the other hand, mercantile property not 

1 [Pecuniary income is here meant. Residence property occupied by a 
tenant earns pecuniary income for the owner, and yiekls to the tenant an 
income of uses which his money buys. — Eu.] 

61 



62 HExNTALS OF URBAN REAL ESTATE 

on traffic streets, wholesalers, etc., pay but a small proportion 
of their receipts as rent, the saving, however, going to the hire 
of drummers to sell goods. 

The gross rents of residences. The gross rents of resi- 
dences represent the proportion of income which various 
classes can afford to pay for house rent. AVhile the return 
for such expenditure is chiefly the satisfaction of suitable sur- 
roundings, social ambition influences all classes to live in the 
best neighborhoods within their reach. The proportion of 
[house] rent to income varies from 15 or 20 per cent, among 
the wealthy, up to 25 or 35 per cent, among tenement dwellers. 

Operating expenses. Taking as gross rents the amounts 
actually received and not the full rental value, from which an 
allowance for vacancies must be made, we may note first the 
great difference in the proportion of operating expenses ac- 
cording to the class of property, this varying from 10 per cent, 
for one- or two-story brick store buiUlings, up to 50 per cent, 
for office buildings or apartment houses. Explaining this 
difference is the fact that in office buildings and apart- 
ment houses, from 20 to 25 per cent, of the rent repre- 
sents the payment for services, such as light, heat, elevator, 
janitors, cleaning, etc. If from gross rentals all service 
charges are deducted, the other charges, taxes, insurance, re- 
pairs and rent collecting, approximate in percentage quite 
closely in all classes of property. 

Average taxes. Average taxes vary somewhat in different 
cities. Taxes on individual properties in the same city vary 
more sharply owing to irregular assessing by tax officials. 
Figuring the average of a large number of American cities, 
taxes range from li/4 to II/2 per cent, of actual value, the 
chief exceptions being in Washington, where taxes amount 
to %o per cent, (the United States Government paying half the 
taxes), and in San Francisco, where taxes amount to %o per 
cent, (the city having no bonded debt). The chief errors of 
assessors come from their overestimate of external appearances 



RENTALS OF UltBAN REAL ESTATE 63 

and from the habit of following former assessment rolls, so 
that quite uniformly property which has been valuable but 
Avhich is deteriorating- is assessed higher than property in the 
line of growth and yielding larger rents. 

The cost of insurance. The cost of insurance is usually so 
slight that it can be disregarded in making up the budget of 
annual expenses. Eates range from 15 cents to 30 cents per 
$100 per annum for first-class risks in the larger cities, 50 
cents to 75 cents per $100 on first-class risks in the smaller 
cities, $1.00 per $100 on stores and office buildings in the 
smaller cities, and so on up. 

Repairs. Leases vary in their provisions as to payment for 
repairs by landlord and tenant, but if paid by the tenant the 
rent is proportionately reduced. Average repairs vary from 
one-half of 1 per cent, of the value of the building per annum 
in the case of the highest type of fireproof buildings, 1 per 
cent, for ordinary mercantile buildings, 2 per cent, for older 
l)roperty or that of cheaper construction, 3 to 4 per cent, for 
old tenements, and so on up in proportion to the age, character 
of construction, and lack of care of the buildings. 

Cost of rent collecting. The cost of rent collecting aver- 
ages from 21/2 to 3 per cent, of the rent receipts in the larger 
cities, according to the class of property, and about 5 per cent, 
in the smaller cities, according to the class of property. 
Owners who are competent to manage real estate may save 
agents' commissions by so doing, but instances are not un- 
common, especially as to large business property, where owners 
managing their own property lose their time and from 20 to 
30 per cent, of the income which an expert rental agent could 
have obtained. 

Operating expenses and net rents. An estimated scale of 
proportion of total operating expenses and net rents would 
be as follows, the cost of services where rendered, as in office 
buildings, apartments and some tenements, being included in 
expenses : 



64 RENTALS OF URBAN REAL ESTATE 

Expenses, Net rents, 

per cent. per cent. 

Low retail or wholesale buildings 10-25 90-75 

Residences 20-30 80-70 

Non-elevator office buildings 25-35 75-65 

Tenements, non-elevator and elevator . . . 25-45 75-55 

Elevator apartments 40-55 60-45 

Firepi-oof office buildings 40-55 60-45 

Expenses and net income. It is clear that the lower the 
cost of the building in proportion to the value of the land, the 
nearer the income approaches to pure ground rent, against 
which the sole charge is taxes. On the other hand, the more 
expensive the building the higher the maintenance cost, owing 
both to the greater number of services rendered and to the 
higher standard of accommodation. Since the operating ex- 
penses of a building, whether fully or only partly occupied, 
vary but slightly, the larger the proportion of expenses to 
gross rentals the more marked will be the rise or fall of net 
rentals as gross rentals fluctuate. Ordinarily, expensive office 
buildings are properly located, the chief errors being in the 
erection of expensive buildings in small cities, or in poor loca- 
tions in larger cities. When hard times cause a sharp drop 
in rents in the smaller cities, instances have been known of the 
upper floors of such buildings not earning sufficient rent to pay 
for the mere services rendered, so that it would pay for owners 
to close the buildings above the ground floor, even though the 
ground floor stores are in active demand. The danger to 
owners of heavy flxed charges is shown in the following table 
[gomewhat abbreviated] : 



With 






percentage 

of expenses 

to gross 

income. 


If gross rents rise or 

20 per cent. 40 per cent. 

then net rents rise or 


fall 

60 per cent, 
fall 


10 per cent. 
20 •' " 


22 per cent. 44 per cent. 
25 " " 50 " " 


66 per cent 

75 " "■ 


30 " " 


29 " " 56 " " 


85 " « 


40 " " 


33 " " 66 " " 


100 " " 


50 " " 


40 " " 80 " "' 


120 " « 


60 " " 


50 " " 100 " " 


150 " " 



RENTALS OF URBAN REAL ESTATE 65 

Allowance for income from building. The next charge 
against gross rents is for interest on capital invested in the 
building, this being figured at the same rate as the capitaliza- 
tion of the ground rent, after an allowance for depreciation 
has been made. 

[This charge of interest on capital invested can be looked upon 
only as estimate made at the moment of investment, in the belief tiiat 
the form and style of building is being suitably chosen. After the 
building is done, the amount properly to be charged against gross 
rents on account of the building would have to be judged from other 
conditions than the amount invested, and the investment may be deemed 
to be either partly or wholly lost. This is strikingly brought out by 
the pictures and the accompanying explanation which appear in the 
text at this point. — Ed.]. 

Net ground rent. The final residuum constitutes the . . . 
ground rent which represents the competitive premium paid 
for location. Where there is no residuum of ground rent in 
city land it does not follow that the land has no value, but 
usually that the improvements are not suitable, so that the 
value must be estimated under a different utilization. If the 
improvement is a suitable one, absence of ground rent may be 
due to temporary drop in rentals or bad management, all city 
land normally yielding some ground rent. 

Ground rents and various utilities [page 145]. In review- 
ing the evolution of value ^ in urban land, the first step is to 
conceive of the naked site apart from the buildings, having 
only the qualities of location and extension and without value 
until there is competition for land. . . . Exchange value con- 
sists of [the capitalization of the ground rent] modified by fu- 
ture prospects. Ground rent is the residuum after deducting 
from gross rents all operating charges, taxes, insurance, re- 
pairs, rent collecting, and interest on the capital invested in 
the building. Ground rent is a premium paid solely for loca- 

1 [In the following paragraphs the statements made regarding "value" 
are almost all true also of renfal-value and of usance-value, although they 
are made in the text in relation to capital value. — Ed.] 



66 RENTALS OF URBAN REAL ESTATE 

tion and all rents are based on utility. Utilities in cities tend 
constantly toward specialization and complexity, business be- 
ing broadly divided into distribution, administration and pro- 
duction, and then indefinitely subdivided; and residences be- 
ing divided into as many classes as there are social grades. 
In so far as land is suitable for a single purpose only, its 
value is proportionate to the degree to which it serves that 
purpose and the amount which such utility can afford to pay 
for it. When land is suitable for a number of purposes, one 
utility competes against another ard the land goes to the 
highest utilization. . . . 

Different uses of land. Th^^ " ^rs distributing values over 
the city's area by attraction or repulsing various utilities are, 
in the case of residences, absence of nuisances, good approach, 
favorable transportation facilities, moderate elevation and 
parks; in the case of retail shops, passing street traffic, with a 
tendency towards proximity to their customers' residences; in 
the case of retail wholesalers and light manufacturing, prox- 
imity to the retail stores which are their customers ; in the case 
of heavy wholesaling or manufacturing, proximity to transpor- 
tation ; and in the case of public or semi-public buildings, for 
historical reasons, proximity to the old business center; the 
land that is finally left being filled in with mingled cheap 
utilities, parasites of the stronger utilities, which give a low 
earning power to land otherwise valueless. 

Proximity and accessibility. Value by proximity responds 
to central growth, diminishing in proportion to distance from 
various centers, while value from accessibility responds to 
axial growth, diminishing in proportion to absence of trans- 
portation facilities. Change occurs not only at the circum- 
ference but throughout the whole area of a city, outward 
growth being due both to pressure from the center and to 
aggregation at the edges. All buildings within a city react 
upon each other, superior and inferior utilities displacing 
each other in turn. Whatever the size or shape of a city 



RENTALS OF URBAN REAL ESTATE 67 

and however great tlie complexity of its utilities, the order 
of depeudence of one upon another is based on simple princi- 
ples, all residences seeking attractive surroundings and all 
business seeking its customers. 



OJoB'' :, 



HOUSING AND RENTS IN AMERICAN TOWNS 

[The British Board of Trade Report on working-class rents, etc., 
in the principal industrial towns of the United States (made in 
April, 1911), presents a comparison by means of index numbers, of 
average rents for working-class houses and apartments in the various 
towns investigated. The dwellings are classed merely by the number 
of rooms (the mean between the lowest and highest rates that pre- 
dominate being determined) ; and thus the comparison between large 
and small cities leaves out of account difl'erences in yards and gar- 
dens, in height of building, etc. A four-room apartment on the fifth 
floor, without a foot of yard enters into the estimate just as does a 
separate one-story, four-room cottage with a yard. The difficulties are 
recognized in tlie report, where they are deemed unavoidable. The 
method of computing the averages, by a somewhat elaborate process, 
having been explained, the report says (p. xxv. flf.) :] 

In the following table the index numbers so calculated are 
given, showing the relative level of rents in each of the towns 
investigated as compared with New York, the predominant 
rents in that town being taken as the base (= 100) : 

EENTS INDEX NUMBERS IN DESCENDING ORDER. 
NEW YORK = 100. 

Index Index 

Town. number. Town. number. 

Borough of Manhattan (New New Orleans 72 

York) -.. 109 Savannah 71 

St. Louis 101 Louisville 71 

NEW YORK 100 Chicago 70 

Pittsburg 94 Milwaukee 66 

Memphis 93 Lawrence 64 

Cincinnati 93 Cleveland 64 

Borough of Brooklyn (New Paterson 62 

York) 88 Providence 59 

Brockton 83 Augusta 58 

Boston 82 Detroit 57 

Birmingham 81 Fall River 55 

Philadelphia 79 Baltimore 54 

Newark 78 Lowell 52 

Minneapolis — St. Paul 77 Muncie 44 

Atlanta 76 

63 



RENTS IN AMERICAN TOWNS (iO 

It will be observed from the above table that, while the index 
uumber for St. Louis is slightly higher than that for New 
York as a wliole, the figure for the great borough of Manhat- 
tan, still often regarded as New York proper and still the 
center of the most congested areas in the world, is 109, while 
that for the borough of Brooklyn is 88. Apart from St. Louis, 
Pittsburg (a rapidly growing industrial center), Memphis (a 
city hardly less Western than Southern in temper and stage of 
development), and Cincinnati (still somewhat hampered in 
the development of its housing accommodation by physical 
conditions), also stand out as towns in which the range of 
rentals is relatively high. Brockton, the highest among the 
New England towns, is the center of a staple industry in 
which wages and the standard of comfort are not only gener- 
ally high but more approximately uniform than in most towns. 
Baltimore and Detroit, with index numbers respectively 46 
and 43 per cent., lower than that for New York, are the most 
important towns included among the more cheaply rented, al- 
though the position of Cleveland, Milwaukee and Chicago is 
not far removed, with index numbers of 64, 66 and 70 re- 
spectively. Between New York and Detroit, which ranks as 
one of the "home cities" of America, Philadelphia, which is 
best known by this title, occupies a middle position with an 
index number of 79. 

Although wide difi'erenees are thus shown in rents as be- 
tween town and town, the local variations, apart from the 
unique position occupied by New York itself, are much less 
marked when these are grouped geographically, as the fol- 
lowing table shows : 

BENTS INDEX NUMBERS FOR GEOGRAPHICAL GROUPS. 
NEW YORK in: 100. 

Number 

of towns Mean rents. 
Geographical group. in group. Index numbers. 

NEW YORK 1 100 

New England towns 6 66 

Other Eastern towns 4 68 

Central towns 6 71 

Middle West towns 4 79 

Southern towns 6 75 



70 RENTS IN AMERICAN TOWNS 

The lowest index number is that for the New England group, 
66, a figure to which that for the other Eastern towns closely 
approximates. The six Central towns include Muncie, a small 
town in which industrial conditions, largely owing to the clos- 
ing of steel-rolling mills, had been recently depressed and in 
which rents in 1909 were exceptionally low in consequence. 
Omitting Muncie, the index number of the Central group is 
76, or nearly as high as that for the Middle West, the towns in 
which, with a mean index number of 79, stand out as the most 
highly rented geographical group of all. The Southern group 
includes Memphis, a town that is largely dominated by the 
"Western spirit and where rents are high. It differs in tone 
and character from the other five towns in this group and, 
excluding Memphis, the mean index number for dwellings in 
the occupation of whites for the remaining five Southern towns 
is 72, a figure which still seems a relatively high one for a 
part of the country in which the temperature is never low and 
in which shelter is perhaps equally important as a protec- 
tion from heat as from cold. In these towns, however, homes 
are generally self-contained and sites relatively liberal, and 
there is practically no congestion, while the towns themselves 
are largely representative of the new industrial South. 

In spite of the complex and often local causes that help to 
determine rent levels, when the towns are grouped on the basis 
of population a general conformity with the rule that the rents 
of large towns tend to be higher than those of smaller ones is 
shown, and in this respect the position is illustrated in the 
following table: 

BENTS INDEX NUMBERS FOR POPULATION GROUPS. 
NEW YORK z= 100. 

Number 

Population group. of towns Mean rents. 

in group. Index number. 

NEW YORK (population 4,766,883) 1 100 

Other towns with more than 500,000 inhabitants 8 78 

Towns with from 250,000 to 500.000 inhabitants 5 73 

Towns with from 100,000 to 250,000 inhabitants 8 69 

Towns with under 100,000 inhabitants 5 64 



RENTS IN AMERICAN TOWNS 71 

. . . The Census of 1900 gives particulars of the number of 
dwelling-houses owned by their occupiers either free or encum- 
bered, and the combined percentages ranged at that date, so 
far as the towns covered by the inquiries are concerned, from 
a maximum of 39.1 in Detroit to a minimum of 12.1 in New 
York. In six cases the percentages exceeded 30, namely in 
Detroit, as mentioned, with 39,1 per cent., 16.6 per cent, 
being encumbered; Cleveland with 37.4 per cent., 16.1 per 
cent, being encumbered; Milwaukee with 35.9 per cent., 19.4 
per cent, being encumbered; Duluth with 35.7 per cent., 
11.5 per cent, being encumbered; Brockton with 33.9 per 
cent., 23.1 per cent, being encumbered ; and Muncie with 32.7 
per cent., 14.8 per cent, being encumbered. In fourteen of 
the towns investigated the numbers of dwelling-houses owned 
by their occupiers, both free and encumbered, exceeded 20 
per cent, and were under 30 per cent. ; in eight towns, includ- 
ing tive of the six Southern towns with large proportions of 
their population colored, the combined percentage fell below 
20; the remaining three towns being Boston with 18.9 per 
cent.. Fall River with 18.0 per cent., and New York, as men- 
tioned, with 12.1 per cent. It must be observed that the above 
percentages refer to dwelling-houses of every kind irrespective 
of the class of occupier, and that it is impossible, therefore, to 
state to what extent the owners belonged to the wage-earning 
class. The chief methods by which purchases are arranged 
are either through the medium of building and loan associa- 
tions or through the special facilities offered by builders and 
real estate companies. Building and loan associations are 
widely scattered throughout the country, and are especially 
numerous in Philadelphia, but the competing activities of 
builders and companies, with many variations on the general 
plan of a percentage payment of the price in cash with first 
and sometimes second mortgages and sometimes on a simple 
plan of payment by monthly instalments, are still more gen- 
eral. As a rule ownership includes the freehold, but in Balti- 
more the buildings are frequently held alone, the ground rent 



72 RENTS IN AMERICAN TOWNS 

being a separate and permanent charge. To a less extent a 
similar practice prevails in Fall River, 

As regards foreigners, among those who appear to be the 
most active buyers of real estate are the Germans, Italians, and 
Jews, but also the Poles in towns such as Detroit and Mil- 
waukee, the Bohemians in Chicago, and the Scandinavians in 
Dulutli and Minneapolis-St. Paul. The great effort made to 
become house-owners is frequently mentioned in the town re- 
ports, a special impulse to incur a present sacrifice being 
doubtless often found in the confidence with which a future 
rise in the value of land is anticipated. When a customary 
local type of building is for the accommodation of more than 
a single family, the dwelling is still often purchased by small 
owners and one or more tenements, as the ease may be, are then 
sublet. This would be the usual and, indeed, under local con- 
ditions, the almost necessary practice in such towns as New 
York and even Boston, but subletting part of what is designed 
for the accommodation of a single family, or the introduction 
of a disproportionate number of lodgers and boarders, is also 
apt to follow on purchase, as among the Poles in Milwaukee. 
In general it may be observed that the practice of purchasing 
dwellings by wage-earners in the United States has assumed 
large proportions ; that it is regarded as a satisfactory feature 
of the urban situation ; and that, in spite of the large transient 
element of the population, it is apparently increasing. 

[In the comments made on conditions found, some interesting prob- 
lems of house rents are suggested, page xxi:] 

The normal difficulties of standardizing dwelling accommo- 
dation in the United States are increased by the special im- 
portance that attaches there to what is understood by "loca- 
tion, ' ' a quality that every town both in the Old and the New 
World exhibits in some measure, but one which assumes a dis- 
tinctive character when segregation is apt to follow not only 
the more usual broad distinctions of class and income but also 
minor subdivisions due to race and color. In general, how- 



RENTS IN AMERICAN TOWNS 73 

ever, the rental differences due to these forms of segregation 
are less marked than the differences due to the character and 
general advantageousness of the dwellings themselves. 

The most conspicuous illustration of this is found in the 
housing conditions of the negroes who, although as a class they 
generally have to pay somewhat more than the white man for 
identical accommodation, are found frequently paying a lower 
range of rent, not because the individual houses occupied by 
them are more moderately rented and really cheaper, but 
rather because those which they are able to secure rank often 
amongst the older, and, more uniformly, among the less de- 
sirable properties. Such conditions are illustrated, for in- 
stance, in Baltimore or Savannah. When, as in New York 
City, much the same class of dwellings are in colored as in 
white occupation, a somewhat higher level of rent is generally 
paid by the former class of tenant, even in recognized colored 
districts and always in districts which are still predominantly 
white. . . . 

[Page xxiv] As regards housing accommodation in general, 
there is much evidence of an activity of competition among 
owners and builders and of a degree of material prosperity 
that are tending very widely to raise its standard. Thus, al- 
though the areas of deterioration and congestion frequently 
found and the occasional rapidity with which the character 
alike of the buildings and of districts is apt to change for 
the worse in the racial kaleidoscope of American towns, mili- 
tate against improvement, the general standard is being dis- 
tinctly raised. Powerful influences to this end are found in 
the increasing facilities for transit, including nearly every- 
where electric tramway systems, and in some cases in the 
construction of bridges and tunnels by which physical bar- 
riers of the past are being still further overcome. Of the 
power of these influences New York is itself perhaps at once 
the most important and the most striking example. But a 
more fundamental explanation of this improvement is found 
ill the higher standard of demand that follows from an increas- 



74 RENTS IN AMERICAN TOWNS 

ing prosperity. The demand for improved housing itself is, 
indeed, a natural accompaniment of similar changes that are 
taking place as regards, for instance, amusements, clothing 
and food, in all of which a great variety appears to be resulting 
from a vast and an increasing effective demand. In other 
directions analogous changes are manifest, and just as man- 
sions are becoming more splendid and middle-class homes more 
replete with comfort, so cottages and smaller homes are be- 
coming more attractive and more convenient. Congested areas 
of crowded dwellings are, it is true, manifest and glaring ex- 
ceptions to this rule, while the not infrequent practice of build- 
ing more flimsily and the large number of dwellings still being 
erected for three or more families are opposed to it; but the 
general tendency, especially as regards the dwellings in the 
occupation of the more skilled workmen, is nevertheless to- 
wards a marked improvement. 



THE FARMER'S WOODLOT 

[The conditions of the wood supply in America have been rapidly 
changing. An interesting illustration of the manner in which this 
change is related to prices, and the way it is affecting the use of land 
for timber (which is coming to be looked iipon as a growing crop 
instead of an incumbrance on the land), is found in a portion of 
"An Agricultural Survey," by G. F. Warren, and others, Bulletin 295, 
of the N. Y. State College of Agriculture, 1909, p. 464, ff.] 

Development of the woodlot. A little over a hundred years 
ag'o Tompkins County was covered with a dense stand of ex- 
cellent virgin timber. This consisted of white pine, oaks, 
hemlock, maples, beech, elm, basswood and many other species. 
In the early days there was little market for lumber and in the 
haste to get the land cleared for farm purposes much of the 
finest timber was burned. It is estimated by men whose 
fathers settled the county that fully 60 per cent, of the virgin 
forest was cut and burned in order to clear the land. Un- 
fortunately, neither the early or later clearing had much ref- 
erence to the character of the soil. Woodlots are still common 
on some of the level rich land; and poor barren hillsides 
that are too steep for tilled crops or even for good pastures 
were cleared. There seemed to be no plan or system in clear- 
ing land. Whether a field was cleared or not seems to have 
been a matter of chance rather than a result of judgment. 

Prices of lumber. The ''log-run" prices of timber for a 
number of years show how rapidly the price that the lumber- 
man gets for timber has increased. Not only have the prices 
increased but many kinds of lumber that once had no value 
now sell at fair prices. The figures in Table 68 give the 
average prices obtained by examination of the books of some 

75 



76 



THE FARMER'S WOODLOT 



of the oldest lumbermen. They are for the lumber just as 
it comes from the saw-mill, or "log-run" prices. 

TABLE 68. AVERAGE "LOG-KUN" PRICES OF TIMBER. TAKEjST FEOM 

lumbermen's books. 





1843. 


1850. 


1860. 


1870. 


1880. 


1890. 


1900.- 


1908. 


White pine . . 


$6 00 


$ 8 00 


$12 00 


$16 66 


$21 33 


$24 00 


$28 00 


$35 00 


Hemlock . . . 




4 00 


4 66 


6 33 


7 00 


9 33 


12 33 


18 66 


White oak. . 




6 00 


7 50 


14 00 


15 33 


16 00 


18 66 


26 66 


Red oak. . . . 




10 00 


12 00 


13 33 


14 50 


15 33 


18 33 


22 50 


Hickory .... 




18 00 


20 00 


20 00 


22 50 


22 00 


26 00 


27 33 


White ash. . . 




12 00 


12 50 


16 00 


19 00 


19 00 


20 33 


26 00 


Cherry 




7 00 


12 50 


18 50 


19 50 


24 00 


26 50 


35 00 


Basswood .,. . 




6 00 


8 00 


9 00 


11 00 


12 66 


15 66 


20 66 


Hard maple. 






6 50 


8 00 


10 50 


12 00 


14 33 


19 00 


Chestnut . . . 






7 00 


8 00 


10 66 


14 66 


17 66 


21 33 


Elm 






9 00 


12 00 


14 00 


15 00 


19 50 


20 50 


Birch 

Beech 






8 00 


10 00 


14 00 
5 00 


14 50 
7 00 


17 50 
11 00 


21 50 
15 00 


Chestnut rail- 
















' 


road ties. . 






1 






28-42C. 


28-45C. 


30-50e. 


Oak railroad 


















ties 








50 


50 


42-58 


45-60 


50-75 


Soft cord- 


















wood .... 














1 50 


2 00 


Hard cord- 


















wood .... 








3 00 


3 25 


4 00 


4 50 


4 00 



Present condition of the woodlots. The present conditions 
of the farm woodlots in Tompkins County are representative 
of the conditions of the woodlots in many other counties in 
New York State. They might well be described as irregular, 
detached pieces of woodland, consisting of all sizes and ages 
of mixed deciduous and coniferous species, of first, second, 
and stump growths. They occupy no definite position as re- 
gards soil or altitude. Steep hillsides and ravines are denuded 
of their forest covers, in certain sections, and in other sections 
more or less thrifty woodlots occupy good agricultural land. 
They have no definite relation to the general lay-out of the 
farms. They are composed of dead, diseased, young, mature 
and weed trees all thrown in together. The valuable are left 
to struggle for supremacy with the useless but hardy species, 
and in addition are frequently required to withstand the rav- 
ages of stock. The fact that useful woodlots persist in spite of 



THE FARMER'S WOODLOT 77 

these conditions is evidence of the excellent adaptation of 
this region to the growth of trees. 

It is a deplorable yet self-evident fact that only a few of 
the farmers in Tompkins County have done anything toward 
improving their woodlots. When a piece of land is cut over, 
little attention is given to saving the young growth. Prob- 
ably one-third of the woodlots of the county are being pastured. 
Such land is rarely worth much as a pasture, and the stock 
greatly injure the woods. 

The woodlots are worth saving. Farmers are usually not 
aware of the value of their woodlots. Estimation of the value 
of standing timber is not easy for an experienced lumberman. 
Many farmers seem to have no idea of the value of timber. 
The following are a few examples taken from lumbermen's 
books : 

EXAMPLE I. 

A farm of 122 acres, 80 acres of which was woodland consisting of 
mixed hard and soft wood timber: oak, basswood, hemlock, maple, 
cheny, beech, ash, birch, elm. 
Proceeds from lumber sales: 

500,000 ft. mixed lumber at $20.00 per M $10,000 

500 cds. slab wood at 50c 250 

Resold farm with top wood. 700 

Total sales $10,950 

Cost of cutting and marketing 4,250 

Net sales. . $6,700 

Price paid for farm 1,750 

Profit $4,950 

EXAMPLE II. 

A farm of 50 acres, 35 of which was of mixed hardwood. 

Total sales, lumber and lot resold $5,004 

Cost of cutting and marketing 1,500 

Net sales $3,594 

Price paid for farm 500 

Profit $3,094 



78 THE FARMER'S WOOlDLOT 

EXAMPLE III. 

A lot consisting of 16 acres of mixed hardwood. 

Proceeds from lumber sales $2,194 

Cost of cutting and marketing 900 

Net sales $1,294 

Price paid for lot 500 

Profit $794 

Cost of putting lumber on the market. The cost of put- 
ting lumber on the market is quite variable, depending on the 
kind of lumber and the distance that it must be hauled. The 
price is constantly rising as wages advance. An average of 
$10 per thousand board feet is perhaps a fair estimate for a 
farmer to make. 

Most of the timber cut in Tompkins County is sawed by 
portable sawmills. The lumber then has to be hauled to 
market. The distance to market varies greatly, but ordinarily 
it is two to six miles. The estimated cost of cutting the timber, 
sawing and delivering to market is as follows : 

Cutting (logs) per thousand feet $ 75 

Skidding to mill per thousand feet 2 00 

Sawing per thousand feet 3 00 

Sticking (piling lumber) per thousand feet 40 

Delivering to market per thousand feet 2 00 

Estimated overrun per thousand feet 35 

Total expense per M. board feet $8 50 

The woodlot now a profitable farm crop. As an example, 
a farm on the hill lands of southern Tompkins County con- 
sists of 100 acres, 30 acres of which is in timber. This wood- 
lot was cut in 1907 for the third time in 90 years. Each time 
it has been cut with entire disregard for the future. The third 
cutting on the 30 acres sold for $2,100, standing. In spite 
of the present high price of lumber, no attention was given 
to the future in this cutting. Young trees that were scarcely 
worth cutting, but that would be valuable in 10 to 20 years, 
were cut. Those that were too small to cut were broken down. 



THE FARMER'S WOODLOT 79 

This is the almost universal practice, in spite of the profits 
that come from such a woodlot. 

After "skinning" the woodlot, the entire farm of 100 acres, 
with buildings, was sold for $1,400. This farm would not 
rent for $1 per acre, as indicated by the selling price. But, 
in spite of the owners, it has grown $70 worth of wood per 
acre since the last cutting 30 years ago. If the $1 per acre 
rent were placed at compound interest at 5 per cent., it would 
not amount to $70 at the end of 30 years. In other words, 
the wood land pays better than the farm land. If the wood 
land were given a very little attention in cutting, so as to main- 
tain a stand of the best kinds of trees, the returns could prob- 
ably be doubled. 

As another example, a lot consisting of 35 acres composed 
of mixed hardwood was cut and the net proceeds from the 
timber sales amounted to $4,938. Men who knew the history 
of this w^oodlot asserted that 75 per cent, of the wood had 
grown in the past 22 years. That is, the lot was cut over 
22 years ago and the greater part removed. According to 
these estimates, $3,704 of timber grew on the 35 acres in 22 
years. This is $106 per acre or $4.82 per acre per year. 
This land would not sell for over $15 per acre. 

These examples are fairly typical of southern New York 
woodlots. Neither of them received any care. If the diseased 
trees and weed trees had been cut and the woodlot looked after 
as a farm crop, the income would have been much greater. 

These profits are based on what is made when lumber is 
sold, but the chief use of a woodlot is to supply posts and 
lumber for farm purposes. If lumber and posts have to be 
purchased, they usually cost much more than is received for 
those that are sold. So that the profits will be much greater 
than those given above. 

Suggestions on the care of woodlots. The first thing to 
consider in the management of a woodlot is to decide where one 
is wanted. There are some areas of land now in woodlots 
that are so rich and valuable that it may be best to cut the 



80 THE FARMER'S WOODLOT 

wood and use the land for pasture and later clear it. On 
other farms there is cleared land that is of little value and that 
had best be set to trees. On still other farms the woodlot 
is already in the right place. If it has been decided that a 
woodlot is desired in a certain place, this area should be 
devoted to woods. It should not be pastured. If it is needed 
for pasture it will pay better to devote half of it to pasture 
and half to woods. The pasture part will then be gradually 
cleared, leaving only enough trees for shade. Half the area 
devoted entirely to woods will probably grow as much wood 
as the entire area will if pastured. It is poor economy to 
try to grow trees and grass on the same land. 

After the area to be devoted to woods has been determined, 
the woods should be looked on as a regular farm crop. The 
dead trees, the ill shaped trees, and the undesirable kinds 
should be cut. The open spaces should be planted with good 
kinds of trees. Nearly all of this work can be done in winter 
or at other times when little or no work would otherwise be 
done. The planting can be done very rapidly and at small 
cost. 

White pine, chestnut, and black locust are the most de- 
sirable trees to plant. White pine will grow well in most of 
southern New York. Chestnut is particularly adapted to the 
poor soils. Black locust is good for posts. It is sometimes 
attacked by borers. It may not be quite so good for the poorer 
land as chestnut. The State encourages this planting by 
furnishing trees at cost. Directions for planting are sent with 
the trees. For these trees address the State Forester, Albany, 
N. Y. 

When the woodlot is cut the young trees should be saved 
so far as possible, and those that are not of fair size should 
be left for future years. 



HAULING FROM FARMS TO SHIPPING POINTS 

[Ax example of the economic problem of place-value is found in the 
location of farms relative to the shipping points on railroads or on 
navigable waters. The Bureau of Statistics of the U. S. Department 
of Agriculture, in Bulletin 49, issued in 1907, published the results 
of an in<pilry in which replies were received from correspondents in 
nearly two thousand counties. Most of the explanation of the methods 
used in the calculations, and most of the detailed tables may be 
omitted, but the following extracts give the main results of the in- 
quiry.] 

Rates of hiring and actual costs. The price for hiring a 
team, wagon, and driver for one day in a given community is 
taken, in this investigation, as the cost of hauling in that 
community — the cost to the farmer to perform that service for 
himself. It is known that farmers in the United States usually 
do their own hauling, and in many parts of the country the 
practice prevails of exchanging services, so that a number of 
men may on one day haul enough of one man's produce to load 
a railway freight car, and on another day they perform the 
same service for a second member of the group, continuing this 
until all members have been helped; but, as a general fact, 
it is rare that a farmer hires his produce hauled to a shipping- 
point or local market, and in many communities the practice 
is unknown. 

In a few parts of the wheat regions of the Mississippi 
Valley farmers hire their grain hauled at certain rates per 
Ijushel; and professional "freighters" are important aids to 
the farmers and grazers between the eastern slope of the 
Iiocky Mountains and the Pacific coast. This region is one 
of great distances, and it does not pay all of the producers 
to keep enough horses, wagons, and drivers to move their 

G 81 



82 HAULING FROM FARMS 

wool, cotton, or other surplus over the long distances of 50, 
75, 100, and even 150 miles from the ranch to the "local" 
shipping point or market. The "freighter" will take the 
produce for a moderate charge, and on his return trip will 
bring merchants' goods and farm supplies from the distant 
railroad station. 

Conditions affecting actual cost. Hauling in most cases 
may be regarded as a secondary employment for the horses, 
wagons, and drivers of the farm, the chief duties of the 
men with their teams being on farms themselves. . . . But the 
price paid for hiring may be regarded, generally, as subject 
to competition and, hence, tending to equal a sum which will 
just cover the actual cost of performing the service and allow 
a fair profit in addition. The actual cost to a farmer of 
performing the service of hauling for himself may in certain 
instances be less than the cost of hiring, and in other cases 
it may be more. The hauling may be done when no other 
farm work is pressing and when teams and wagons would 
have no other employment. One-half the cost of hauling may 
be saved when it is practicable to take full loads on the re- 
turn trips. Sometimes farmers haul produce to market and 
return with loads of fertilizer, coal, or other goods. These 
back loads, however, may be regarded as rather exceptional, 
and their influence upon the average cost per load of produce 
hauled from the farm, as computed in the following tables, 
is not known to be important. 

On the other hand the farmer's expense of hauling may 
be increased on account of bad roads; he may be compelled 
to deliver his product at the local shipping point when prices 
are low or wait for a better market and run the risk of hav- 
ing to haul over rough roads with more horses to the wagon 
and a much lighter load. Some persons prefer to sell at 
a lower price than to wait for a better market and incur the 
expense of hauling under difficulties which may amount to 
double or even four times the normal cost. 

Taking into consideration the low and the high costs of 



HAULING FROM FARMS 



83 



hauling, it does not appear that the average cost is not about 
the usual price for hiring in that community. . . , 

Values of products and costs of hauling. The average 
costs per 100 pounds for hauling products from farms to 
shipping points vary in a number of instances roughly with 
the relative values of the articles hauled, the more valuable 
product being hauled often at greater cost than the less valu- 
able product. Corn, wheat, oats, hay, and potatoes were 



TABLE 1.- 



-AVERAGE COSTS OF HAtrLING PRODUCTS FROM FARMS TO SHIPPING 
POINTS: TOTALS FOB STATES REPRESENTED. 



Product hauled. 



Apples 

Barley 

Beans 

Buckwheat 

Corn 

Cotton 

Cottonseed 

Flaxseed 

Fruit (other than 

apples) 

Hay 

Hemp a 

Hogs (live) 

Hops 

Oats 

Peanuts 

Potatoes 

Rice 

Rye 

Timothy seed c . . . 

Tobacco 

Vegetables (other 

than potatoes) . 

Wheat 

Wool 



o tu 

2 s ft 






Average— 




5.5 
.2 ftfl 




C d ■ 


u 
ft 


ft -S 
MO S 




33 

draft 


q2'.S 


PM.a.2 


6a 


00 

O.H ft 


114 


9.6 


0.9 


2,300 


$2.79 


$0.12 


226 


8.8 


.7 


3,970 


2.67 


.07 


22 


9.0 


.8 


3,172 


2.75 


.09 


8 


8.2 


.8 


2,438 


2.90 


.11 


981 


7.4 


.6 


2,696 


1.78 


.07 


555 


11.8 


1.0 


1,702 


2.76 


.16 


110 


10.7 


.9 


1,654 


2.42 


.15 


51 


10.4 


.7 


3,409 


2.70 


.08 


99 


11.6 


1.1 


2,181 


3.53 


.16 


761 


8.3 


.7 


2,786 


2.32 


.08 


7 


5.2 


.7 


3,393 


2.10 


.06 


316 


7.9 


.7 


h 1,941 


2.00 


6.10 


14 


11.7 


1.0 


3,665 


3.89 


.11 


798 


7.3 


.6 


2,772 


1.82 


.07 


19 


8.1 


.6 


1,363 


1.67 


.12 


569 


8.2 


.7 


2,679 


2.34 


.09 


18 


7.5 


.8 


2,407 


2.70 


.11 


78 


8.4 


.7 


2,625 


2.23 


.08 


5 


8.0 


.8 


2,410 


1.92 


.08 


113 


9.8 


.8 


2,248 


2.28 


.10 


152 


9.8 


.9 


1,852 


2.84 


.15 


1,051 


9.4 


.8 


3,323 


2.86 


.09 


41 


39.8 


5.6 


4,869 


21.39 


.44 



$0.25 
.16 
.20 

.27 
.19 
.27 
.28 
.15 

.28 
.19 
.23 
&.25 
.19 
.19 
.30 
.22 
.29 
.19 
.20 
.20 

.31 
.19 

.22 



a Kentucky only, h Average for six States only, c Iowa only. 

hauled at costs ranging from 7 to 9 cents per 100 pounds, 
cotton 16 cents, and wool 44 cents per 100 pounds. Tobacco 
and hogs, however, cost only 10 cents per 100 pounds to be 
hauled from farms. The difference in cost of hauling be- 
tween one product and another is largely due to the relative 
distance traversed and the relative size of load taken. It 



84 HAULING FROM FARMS 

will pay to produce cotton farther away from local shipping 
points than grain, and 150 miles is not too far to haul wool 
from ranches to railroad stations. Hogs being produced gen- 
erally where grain is also a surplus crop, the prevailing dis- 
tances and methods of hauling for the cheaper products would 
affect the cost of hauling the higher-priced commodity. 

Hauling cotton and wool. [Of the detailed comment 
(Bulletin, pages 14-34) upon the various crops in the different 
States, only a part regarding cotton and wool is here given.] 
... As in the case of nearly all other farm products, cotton 
is generally hauled to local shipping points by the farmers 
themselves, and hiring such work done is the exception. Ow- 
ing to its high value, cotton may be transported profitably in 
much smaller loads and for longer distances than a less valu- 
able article, as grain or hay. It is noted that the average 
load of cotton weighs about one-half as much as the average 
load of wheat in the United States, but a load of cotton, at 
prices prevailing in October, 1906, was worth more than four 
average loads of wheat. 

For the United States the average cost of hauling cotton 
from farms to shipping points is about 80 cents per bale, and- 
the average load is a fraction more than three bales. One- 
horse carts and wagons and ox carts are found more service- 
able in hauling the main crops in the cotton region than in 
the grain country, and their use helps to account for the 
small average loads. It is of interest to see that one of the 
smallest average loads of cotton for any State or Territory 
is in Florida, where about one-half the crop consists of Sea 
Island cotton, a variety much more valuable than the rest 
of the cotton produced in the United States. . . . 

The average cost of hauling wool to shipping points is high 
on account of the great distances traversed, the average 
for the United States being 39.8 miles, and the distance in at 
least one county whose returns enter into the averages was 
150 miles. Hauling over these long routes is usually done 
by freight wagons, owned and driven by persons other than 



HAULING FROM FARMS 85 

the producers of the wool, and the rates actually paid for 
hauling are used in these instances as the cost of wagon trans- 
portation from farm or ranch to shipping point. The large 
number of actual rates paid entering into the average cost of 
hauling wool in the United States makes this figure (44 cents 
per 100 pounds) appear to be one of the most accurate of the 
average costs determined. 

The value of an average load of wool ranges from $500 
to $900 and allows for a high cost to get it to the shipping 
point, and even the cost of 71 cents per 100 pounds for the 
county reported in Arizona and the five counties in Oregon 
is not too large in proportion to the value of the load. . . . 

The farmers' longest hauls. The conditions of hauling 
from farms over the longest routes reported for each product 
are given in Tables 23 to 40.^ While there may be longer 
hauls for farming communities in the United States in the 
cases of some or all tlie crops mentioned in these tables, the 
instances as reported here serve to illustrate extreme costs 
of wagon transportation. It is not to be supposed that all or 
any considerable number of these great costs of hauling per- 
mit the products in question to be sold profitably at prices 
which would prevail in a large commercial center. 

Potatoes hauled 70 miles over Colorado roads at a cost of 
84 cents per bushel, as given in Table 23, could be sold 
only at some local market where prices were far above those 
in most parts of the United States; and the corn, rye, and 
vegetables carried over the Georgia mountains from the ex- 
treme northern part of the State down to Gainesville, a dis- 
tance of some 60 miles, do not represent a considerable por- 
tion of the general supply of those products in Georgia, and 
their extensive production under such great costs of delivery 
is out of question. 

By taking on the same load with grain or vegetables a con- 
siderable amount of poultry, eggs, and butter, a farmer can 

1 rOnly Tablo 23 is hero reprodnoed, in wiiich is indicated the one 
longest haul reported for each ot the i tops lucurioned. — Ed. J 



86 



HAULING FROM FARMS 



make his long trip to town pay, so that the total cost of haul- 
ing the load falls but slightly upon the less valuable part 
of it. A half-ton load of produce taken from farm to local 
market or shipping point at a cost of $16 might easily con- 
tain, in addition to several bushels of grain or potatoes, enough 
poultry, butter, and eggs to make the total value of the load 
from $30 to $50. 

TABLE 23. — COSTS OF HAULING PEODTJCTS IN THE UNITED STATES FROM 
MOST REMOTE FARMS TO SHIPPING POINTS, AS REPORTED. 



Product hauled. 



Apples 

Barley 

Com 

Cotton 

Cottonseed 

Flaxseed 

Fruit (other than 

apples) 

Hay 

Hogs (live) 

Oats 

Potatoes 

Rice 

Rye 

Tobacco 

Vegetables (other 

than potatoes) . . 

Wheat 

Wool 



State or Terri- 
' tory reporting 

most remote 

farms. 



Arkansas . . . . 
New Mexico . . . 

Georgia 

Texas 

Alabama 

South Dakota. 
Utah 



New Mexico . . . 

Texas 

Utah 

Colorado 

Louisiana .... 

Georgia 

North Carolina 



Georgia 
Utah . . 
Oregon 



o M 


h 




h 










1^ OQ p. 






P. 

° ^ 


50.0 


4.5 


2.000 


$12.38 


57.5 


4.0 


2,000 


22.00 


60.0 


8.0 


1,000 


16.00 


110.0 


8.0 


3,000 


24.00 


50.0 


3.0 


1,000 


7.50 


50.0 


2.5 


2,500 


15.00 


52.5 


4.5 


3,000 


13.50 


80.0 


5.0 


2.000 


15.00 


31.5 


3.0 


(a) 


7.50 


100.0 


14.0 


7,000 


35.00 


70.0 


7.0 


2,500 


35.00 


22.5 


2.0 


2,000 


8.00 


60.0 


8.0 


1,000 


16.00 


50.0 


4.0 


1,600 


8.00 


60.0 


8.0 


1,000 


16.00 


100.0 


14.0 


7,000 


35.00 


165.0 


24.5 


7,000 


61.25 



$0.62 
1.10 
1.60 
.80 
.75 
.60 
.45 

.75 
(a) 

.50 
1.40 

.40 
1.60 

.50 

1.60 
.50 
.88 



a Not reported. 



Methods of hauling. In the North Central States much 
of the grain hauled from farms is taken in bulk, and the size 
of load is determined by the capacity of the wagon box. Ad- 
ditional sides and end pieces are put on when it is desired to 
haul larger loads, especially when such a light grain as oats 
is taken. When a farmer intends to load a car with grain, 
and it is necessary to haul from ten to twenty wagonloads 
within a day or so, he often will be helped by a number of 
neighbors. He in turn will aid them when they haul. 



HAULING FROM FARMS 87 

It is a common practice to haul wheat and other small grain 
direct from thrasher to ear. The grain is loaded as rapidly 
as thrashed and each wagon in turn is driven to the shipping 
point, where a wagon dump is often used for unloading the 
grain. This dump is a platform, on which a loaded wagon 
is driven, the end gate of the wagon box removed, and the 
parts of the platform upon which the hind wheels of the wagon 
rest are lowered so that the grain falls into a space below. 
It may be received into a bin under the platform for tem- 
porary storage, or may be conveyed immediately by mechanical 
means to cars or up to bins in an elevator. 

Corn also, in some places, is handled in a similar way, the 
wagons receiving their loads from the machine on the farm 
as the corn is being shelled. 

The use of large wagons with broad tires and teams of 
four, five, and six horses enables farmers of certain parts 
of the United States, notably in the hill country of Mary- 
land and the adjoining counties in Pennsylvania, to carry 
their products to shipping points and local markets in loads 
of two or more tons each. Since one of these large wagons 
holds at least twice as much as an average two-horse wagon, 
one driver performs with the larger outfit twice as much serv- 
ice as he can with the smaller one. Where wages are high 
the economy in the use of the four-horse wagon is consider- 
able. . . . 

The general use in the far West of regular freight wagons 
owned and driven by persons other than the owner of the 
products carried has already been mentioned. ... In order 
that one driver may take charge of a large amount of freight, 
two or more wagons are often coupled together and the en- 
tire train is drawn by a number of horses, mules, or ponies. 
The loads taken by a freight wagon, with its trailers, are 
said to weigh at times as much as seven tons, and as many as 
twelve or fourteen horses are sometimes used in one team. 
Since the freight wagon carries goods also on its return trip, 



88 HAULING FROM FARMS 

its earnings do not depend solely upon hauling farm prod- 
ucts. . . . 

Total costs of hauling done in 1905-6. The quantity of 
all farm products hauled to shipping points in the United 
States in a given time is not to be obtained with much accur- 
acy from present sources of information, but for twelve crops 
the quantity hauled from farms may be estimated approxi- 
mately. . . . The total weight of twelve products hauled from 
farms ... is about 43,000,000 tons, and the total cost of 
hauling this amount was $73,000,000. The average cost per 
ton was $1.80. 

The weight of wheat and corn hauled from farms in 1905-6 
was 31,000,000 tons, while cotton and nine other surplus prod- 
ucts weighed altogether only 12,000,000 tons. The heaviest 
crop, and the one costing most to haul to shipping points, was 
corn, and next in order was wheat. The barley crop, less an 
allowance for seed retained, was heavier than the cotton crop, 
but cost about one-half as much to haul to shipping points. 

The relatively low price of corn made it cost 9.6 cents to 
market a dollar's worth of this grain, while a dollar's worth 
of wheat was taken to shipping points for 7.2 cents, a dollar's 
worth of cotton for 1.4 cents, and a dollar's worth of tobacco 
was hauled for as little as 1.2 cents. 

The high rate per 100 pounds (44 cents) for hauling wool 
amounted to only 2.7 per cent, of the value of the article as 
given in the Twelfth Census. The average cost of hauling 
from farms to shipping points for the twelve articles men- 
tioned was 5.2 per cent of their value. . , . 

As this bulletin treats only of hauling from farms to ship- 
ping points, the quantity of wheat hauled to local mills for 
grinding is not included in the total of 24,246,000,000 pounds 
as given. The entire wheat crop of 1905 amounted to 692,- 
979,489 bushels. Allowing li^ bushels per acre for seed, the 
quantity used on the 47,305,829 acres sown in the fall of 1905 
and spring of 1906 would equal 71,000,000 bushels. This 
amount together with the quantity shipped out of county 



HAULING FROM FARMS 89 

where grown being; subtracted from the total crop, there re- 
mains about 6,500,000 tons of wheat, which may be taken as 
approxnnalely the quantity hauled from farms for the use 
of local mills. With this home-ground wheat added to the 
total weight of traffic as given above, the sum would be over 
49,000,000 tons. And the cost of hauling this wheat to local 
mills, if computed at the same rate as the cost of hauling 
to shipping points, would amount to $11,700,000. This, 
added to the total cost of hauling to shipping points as given 
al)ove, would equal $33,521,000 for wheat and $84,684,000 
for all crops mentioned. 

Value of better facilities. The cost of wagon transporta- 
tion would be lowered if the size of load were increased, or 
the time of round trip shortened, or if both these changes were 
effected; and either of them could be brought about in many 
communities by improving certain roads. The cost of hauling 
should be considered in connection with expenditures for build- 
ing and improving roads. The size of loads might be in- 
creased, without a proportional increase in cost of hauling 
per 100 pounds, by using larger wagons with more horses or 
by driving heavier and stronger horses or mules; and the 
cost of hauling might be further reduced by quickened methods 
^ of loading and unloading. 

Improvements which would reduce the cost of hauling by 
one-tenth would effect a saving of $7,000,000 in hauling from 
farms to shipping points in the United States the products 
and quantities mentioned, and $1,000,000 more would be saved 
in the cost of hauling wheat for the use of local mills, to say 
nothing of the amounts saved in hauling the unknown surplus 
of the crops not mentioned in this table, such as hay, potatoes, 
rye, buckwheat, fruit, vegetables, sugar cane, and sugar beets. 
It" it costs a farmer 5 cents per bushel to haul his wheat to 
the shipping point when he requires one day to make a round 
trip, he might save $25 on a crop of 1,000 bushels if he could 
make two trips per day; or, if he still made but one trip 
a day but could increase the load from 50 to 75 bushels 



90 HAULING FROM FARMS 

without adding to the number of horses, he might reduce the 
cost of hauling by one-third, thus saving about $17. 

The average load of cotton, if increased to twice its present 
size and thus made about the same as the average load of 
wheat, might be hauled at little more than one-half its pres- 
ent cost per 100 pounds. Lowering the average cost of haul- 
ing cotton from 16 cents per 100 pounds, as it now seems 
to be, to 8 cents, would effect a saving of about 40 cents per 
bale, and the total amount saved on a crop equal to that of 
1905 would probably exceed $4,000,000. 



LAND FROM THE WATERS 

[In a remarkable little book, Man and the Earth (New York, 
1906), Nathaniel S. Shaler, late professor in Harvard University, 
surveyed broadly the resources of the earth, showing how some are 
inevitably diminishing, and how others may be increased and improved. 
In the chapter "The Unwon Lands," the subject of irrigation is treated; 
then comes the chapter on drainage, pp. 87-100, which is here re- 
printed by kind permission of the author's family and of the pub- 
lishers. Fox, Duffield and Co.] 

How the waters encroach on the lands. When, in the 
process of building the continents, their surfaces are lifted 
above the plane of the sea, they normally become dry laud, 
and, unless too arid, are fit for the uses of those flowering 
plants on which man depends for food. There are, how- 
ever, a number of accidents which serve to retain a covering 
of water on these fields so as to make them unsuited to the 
uses of the higher plant life. The land may rise irregularly, 
leaving the depressions on its surface which become lakes. 
Like depressions may be formed by the downward-sinking 
areas, by the process which geologists term folding. Again, 
glacial action, by the irregular wearing of the rocks or the 
curious irregular heaps of debris it leaves on the surface, 
creates a multitude of hollows, forming lakes, until they are 
converted into peat bogs. Yet again, in humid countries 
mosses and even reeds may by their matted vegetation hold 
the rainfall as in a sponge, so that even hillsides become 
mantled with the boggy covering. Still further, the sea- 
shores have the amphibious zone of the tides, half land and 
half water, where the two "elements," as the ancients termed 
them, strive for mastery. The result of these conditions is 
that, when the critic man comes to survey the lands and judge 

91 



92 LAND FROM THE WATERS 

them in general very good, he has to note that much of their 
fields have not effectively escaped the primal realm of the 
waters — that there is still much for his arts to mend. 

Large area reclaimable. It is surprising how large a part 
of the what-we-call land is so far occupied by water as to 
make it in its natural state unserviceable for agriculture. 
In the tropical regions these areas of bog ajad lake are least 
extensive; in that realm occupying probably not more than 
ten per cent, of the area. But in higher latitudes and in 
proportion as we approach the poles a greater part of the 
field is permanently inundated, so that from the parallels 
of 40° to the limits that climate sets on agriculture somewhere 
near one-fourth of the land area is in its primitive condition 
unsuited to the uses of man and has to be won to his service 
by the devices of the engineer. 

Drainage in Europe. In Europe, because of the antiquity 
and high grade of its culture, the process of winning the in- 
undated lands to use has already gone very far, so far, in- 
deed, that in ten centuries the aspect of the land has been 
greatly changed. Thus in Great Britain, at the time of Alfred 
the Great, near one-third of the area of the island was beset 
with marshes or with lands of the bog type. These impene- 
trable swamps appear in large measure to have formed the 
boundaries of the separate little kingdoms of the Heptarchy, 
and to have been even more effective barriers than the open 
sea. The redemption of these lands probably began in Saxon 
times, if not earlier, but it appears to have gone forward 
slowly until the reign of James I, when the population of 
England began to press upon the means of subsistence and 
the work of draining the fens was rapidly carried on. As 
an adventurer in this business Oliver Cromwell, it is said, 
had his first clash with his sovereign. Along with others he 
had an important drainage concession from the crown, one 
that was peculiarly favorable for the reason that a Dutch 
company had failed in the same undertaking. When Crom- 
well was successful and in a position to profit largely by his 



LAND FROM THE WATERS 93 

success, the impecunious Charles I appropriated a consider- 
able part of his riyhtful gains. It is not unlikely that this 
action of the king had in the end to do with his discovery 
of the important fact that ''he had a joint in his neck." 

In Holland this process of reclaiming- inundated lands has 
been carried much further than in any other country. When 
agriculture began in this region about the mouth of the Ehine, 
probably not one-tenth of the land now tilled was fit for that 
use. "What was not covered with morasses lay beneath the 
level of the tide. In some fifteen hundred years the stout- 
hearted folk have made the most signal conquest ever effected 
by man in this winning of a state from the waters of sea 
and land. Work of the same nature and hardly less extensive 
lias been done all along the lowlands which border the North 
Sea and the Baltic. Thus the fields of Northeastern Europe, 
in Great Britain, Ireland, the Low Countries, North Germany, 
and Scandinavia, which now support the agriculture of at 
least thirty million hardy people, have been won from bogs, 
marshes, and the bottom of the sea — areas which in America, 
save in a local and unimportant way, have been quite over- 
looked. 

Other areas to drain in Europe. The task of winning land 
from the waters which has been so well done in Northeastern 
Europe and, in some measure, throughout that so-called conti- 
nent, is by no means completed. Even in Holland there are 
great works still under way which some time during the present 
century will make yet further additions of hundreds of square 
miles won from the shallows of the sea to its tillable fields. 
In Russia there are vast areas awaiting the drainage engineer 
to bring them to the service of men so that they may yield 
the food for millions of people. Even in Italy, that most 
ancient seat of high tillage and of crowded population, there 
are extensive projects for reclaiming inundated areas now 
under discussion. These facts show us that in the reserves of 
land to be won before the world is fully peopled, we have to 
reckon largely on the parts of it which are to be reduced to 



94 LAND FROM THE WATERS 

service by drainage. This reckoning is hard to make, for the 
reason that outside of Europe scarcely any attention has been 
given to the problems of drainage, so that but an approach 
to the truth is attainable. 

Draining the sea floor. First let us note that the most 
extensive of the inundated lands is the sea floor, and that 
from its shallower part next the land the important gains of 
Holland have been made. The conditions v^^hich permit such 
winning are very common along most seashores; an embayed 
area of shallow water, where the tides have a considerable rise 
and fall, and where the winds are constant and strong enough 
to serve for pumping, is always available; but the bottom 
of the area to be drained must afford the materials for a fertile 
soil, as it, in fact, very generally does. It is not imperatively 
necessary that the shallows lie on the shores of a tidal sea 
so long as windmills close set by the margin of the area to be 
drained will serve to lower and keep down the water; there 
then is only the simple question of time and cost to bring 
the dyke's area into tillage. 

The drowned valleys. The conditions of embayed waters 
of no great depth, and bottoms that will be fertile when 
drained, are normally found about the mouths of the larger 
rivers. The reason for this is that a recent geological acci- 
dent, the newest of all having a world-wide effect, consisted 
in a general rise of the sea to the extent of some hundred 
feet, due to the upward movement of a portion of the deep- 
sea floor. The gain of the sea on the land led to the flood- 
ing of the valleys of the greater rivers for a long distance 
upward from their ancient mouths; forming such great re- 
entrants of the sea as we have well preserved in the admir- 
able examples of the Chesapeake and Delaware Bays. In 
many cases these drowned valleys have been so far filled in 
with delta deposits, as in the ease of the Mississippi, that the 
alluvial plain again projects out into the sea as at its mouth 
and at the Nile; more commonly there is an embayment, as 
in the case of Mobile Bay. In any event this inundated 



LAND FROiM THE WATERS 95 

valley is certain to have more or less extensive areas of shallow 
water which, as iii Holland, may be drained and turned to 
cultivated fields. 

The work of the mangrove trees. Besides the land won 
from the sea by the plants which develop the marine marshes 
in the higher latitude, we find in the tropics a group of trees 
known as mangroves, which have an even more swift and 
effective method of capturing land in shallow embayments. 
These trees are fitted to grow in salt-water silt, submerged it 
may be by some feet at high tide. They have long runner- 
like branches which, as they grow, extend outward and down- 
ward into the water of the bays until they touch the bottom, 
where they take root and form new crowns and stems which 
in like manner send their runners further seaward. In this 
way a mangrove swamp will speedily close over a shallow 
bay even if it be some miles in width, covering it with a dense 
low forest. While the trees are thus marching outward, their 
seed, long cylinders in form, with grapples at their lower end, 
catch on the bottom as they drift away from the plant that 
bore them, rapidly grow to the surface of the water, and found 
new plantations. Beneath the very dense growth of the man- 
groves the scouring action of the tides and waves is arrested 
and a rapid deposit of plant and animal remains takes place, 
so that what was sea bottom is soon lifted to the state of a 
fresh-water swamp. As there are numerous varieties of man- 
groves in the tropical regions, some of which, as in Florida, 
extend their range to several degrees further toward the poles, 
the area they occupy and the land they have won from the 
sea are alike great. There is no basis for a reckoning as to 
the extent of their work, but it is evident that in the aggre- 
gate these fields must amount to some tens of thousand square 
miles, all of which have been brought by these remarkable 
plants into the state where the engineer may easily complete 
the work of converting them to the uses of man. 

Area reclaimable from the sea. Although the basis for 
computation is imperfect, it may fairly be reckoned that in 



96 LAND FROM THE WATERS 

this debatable ground of the shore zone now occupied by mud 
flats, marshes, and mangrove swamps, there is a reserve of 
land awaiting such work of improvement as has been done 
in Holland, amounting to an aggregate area of not less than 
200,000 square miles of land which with a fully peopled earth 
will be brought into tillage. As this land is of rare fertility 
and enduring to the tax of cropping beyond that of any up- 
land fields, it has a prospective value as a human asset far ,' 
beyond an equal area of ordinary ground. They are likely, 
in time, to afford the food for several hundred million people. 

Area reclaimable from rivers. Turning now to the areas 
of the continents which are occupied by the fresh waters, as 
in swamps and lakes, we find a more extensive set of fields 
for reclamation than on the seashore belt — and a much greater 
variety of problems for the work of the drainage engineer. 
First we will consider the clearly limited group of areas which 
lie along the great rivers, where the annual floods render the 
land untillable. The higher parts of these alluvial plains 
where the annual inundations are such as to prevent tillage 
are easily dealt with by ordinary dyking, and have been thus 
improved in all the great valleys of long-occupied countries. 
Yet there remains along the larger streams of Africa, the 
Americas, and Northern Asia aggregating several hundred 
thousand square miles of naturally fertile land still unwon to 
use. A rough reckoning of these areas which gives only ap- 
proximate results, indicates that the possible winning in the 
ultimate state of culture will amount to not less than 300,000 
square miles with a tillage value for the area quite as great 
as that which may be had from the gains made on the sea- 
shores, or the possible subsistence of many million. If it 
should prove possible to till the middle and lower reaches 
of the great rivers which flow toward the Arctic Ocean, the 
Mackenzie in North America, and the several streams that 
traverse Siberia, the aggregate area of useful alluvial land 
may be much greater than is indicated by this reckoning. 

How glacial lakes were formed. The true morasses, those 



LAXn FROM THE WATERS 07 

inundated fields lying' outside the alluvial fields, are much more 
abundant than the winnable flooded ground beside the rivers. 
The most common of this group are the bogs formed in the 
lakes which gathered in the shallow pits that were shaped by 
the irregular disposition of the drift left on the surface of 
those areas occupied by the ice in the last glacial period. 
AVhen that covering melted away these basins so placed as to 
hold water were almost incredibly numerous. Thus, in New 
England, when the earth was cleared of the glaciers, the 
number of them varying in size from areas of an acre to those 
one hundred square miles in extent were to be numbered by 
the tens of thousands. The writer has estimated that not less 
than ten per cent, of this district was thus covered with tarns 
or lakes. Taking the glaciated parts of the world as a whole, 
the disturbance of the drainage induced by the ice invasion 
probably brought about something like this proportion of 
inundated lands where in the earlier times the brooks and 
rivers had in their usual manner provided a complete drain- 
age. 

Growth of peat bogs. As soon as the glacial sheet had 
disappeared and the basins held in its debris were filled by 
water, a process of closing them began, a process which has 
been continued to our own day. Along the shores of each 
of those lakes where the waves did not have too much power 
to admit of such growth, a species of moss known as sphagnum, 
the form familiar in almost any swamp, found a foothold. 
The microscopic spores of this plant are readily borne by the 
wind for many miles from their parent stations, so that as 
fast as the pools were formed, the growth began, and as the 
ice sheet retreated the mosses were always ready to set about 
their peculiar work. Their task is, indeed, one of the most 
extensive and important of those performed by vegetable life. 
It is as follows : 

Beginning with a delicate mat formed of the intermeshed 
fronds, the sphagnum mosses quickly form a shelf of their 
living and dead parts which extends outwardly from the shore 



98 LAND FROM THE WATERS 

and increases in depth until it may be some feet in thickness ; 
next the shore it rests upon the bottom, but in deeper water 
it floats with its surface a foot or so above the water. From 
the lower margin of this raft of moss the dead parts of 
the plants fall upon the bottom and by their decay from the 
familiar black mud or soft peat which often gathers to the 
depth of twenty or thirty feet. Given time — and in a geolog- 
ical sense no long period is required — and a lake a mile or 
two in diameter will be closed over and solidly filled with the 
muck deposit. Only when the lake is of such area that heavy 
waves may form on it, which serve to break up the advancing 
mat of vegetation, is it preserved from this agent of oblitera- 
tion. The result is that by far the greater number of the 
glacial lakes formed in New England when the ice of the 
last glacial period disappeared have been converted into peat 
bogs; probably more than nine-tenths of them have been thus 
closed. Further to the northward, where the ice went off in 
more recent times, than near its border, the process of occlud- 
ing the glacial lakes is naturally less advanced than in New 
England. In these we more often find "quaking bogs," i.e., 
instances in which the sheet has closed over the lake, but 
where the deposit formed on the bottom has not been built 
up to where it supports the mat so that the peat-making 
process is complete. 

Upland or climbing bogs. The foregoing sketch of the his- 
tory of peat morasses formed in lakes needs to be supple- 
mented by an account of another method of their develop- 
ment, w^hich in many parts of the world where the air is 
moist and cool gives rise to even more extensive deposits 
— those known as upland or climbing bogs. In this group 
the sphagnum begins its growth on the margin of any pool 
and extends its sheet away from the water so that it mounts 
slopes of considerable steepness, sometimes ascending to 
heights of a hundred feet or more in an advance of a mile. 
As it grows in thickness, the lower part of the mat dies and 
so forms an ever-increasing mass of soft peat on which the 



LAND FROM THE WATERS 99 

living' tangle rests, holding, as in a sponge, the water needed 
for its growth. So effectively does it do this that in times 
of heavy rain the bog sv/ells up and occasionally it bursts, 
discharging a tide of black mud which flows like a lava stream, 
in many instances carrying widespread destruction to farms 
antl villages in the valleys through which it flows. 

In eil'ect the lields covered by climbing bogs are limited 
to regions north and south of the parallels of 40° in either hem- 
isphere, for there alone do we And the relatively low tempera-, 
ture and the high measure of humidity needed for their 
development. They originally mantled a considerable part 
of the land now tilled in the northern part of Great Britain, 
nearly all of the lower ground in Ireland, and much of the 
most fertile portion of Germany and Scandinavia, about the 
shores of the North Sea and the Baltic. They still exist in 
vast development in Northei'n Russia and Siberia, in Patagonia, 
and in Canada. South of Canada, they are so scantily de- 
veloped as to have no 'interest from our point of view. In 
Africa and Australia they find no place because of the high 
temperature or the dryness of the air, both of which con- 
ditions prevent the growth of the bog-making mosses. 

Area reclaimable from bogs. It is not easy to estimate 
the amount of tillable soil which can be won from the fields 
now possessed by moss bogs; it may be taken as probable that 
the aggregate area exceeds 300,000 square miles; it being, 
perhaps, the largest part of the earth's surface which can be 
Avon from the covering of water. Should it prove possible 
to develop tillage in any considerable part of the tundra of 
Siberia the total may much exceed that amount; it may on 
those conditions rise to near half a million square miles. 

As for the quality of the soil obtained from these peat- 
covered fields, experience shows that, though variable, it is 
good for a wide range of uses. The fields whence the climbing 
bogs have been stripped are of great and enduring fertility. 
The level bogs of the deposits which have filled lakes have a 
different character; they cannot so readily be brought to 



100 LAND FROM THE WATERS 

tillage. In fact, it is commonly necessary to strip the mat 
of living sphagnum off and then to cover the surface with sand 
or mix the upper part with ordinary earth. Thus treated the 
ground becomes well suited to a great range of important 
plants, especially those reared in market gardens. The in- 
teresting industry of cranberry growing is one of those forms 
of tillage in which the peat soil is turned to account. In fact 
this species of plant will not commercially develop in any 
other conditions save those of drained swamps. 

Area reclaimable from lakes. One of the largest bodies of 
unwon yet winnable lands is that now covered by the waters 
of lakes. Their drainable areas are very numerous, especially 
so in glaciated districts in the part of North America recently 
occupied by the ice-fields. Their basins are to be reckoned 
by the tens of thousands, and their aggregate area is prob- 
ably not less than fifteen per cent, of the field in which they 
lie. The greater number of them, though probably not half 
of the total surface, are to be, in whole or in part, drained 
and brought under tillage as soon as population begins to 
press upon means of subsistence. The ground thus made 
available for tillage is likely in North America to amount 
to not less than twenty thousand square miles. 

The quality of the soil to be won by the drainage of lakes 
will in most instances be excellent. These areas of water, 
though in practically all instances of geologically recent 
origin, have been long enough in existence to have enriched 
their bottoms with deposits of lime phosphate and other ma- 
terials favorable to the growth of plants. The soils drained 
from these accumulations will be prevailingly clayey and 
rather heavy, but very little enduring to tillage and of far 
more than average fertility. They may be reckoned on to 
afford fields as well suited to agriculture as the heavy land 
of Northern Ohio, Indiana, and Illinois, where much of the 
surface took on its character below the former extension of 
the neighboring Great Lakes. 

Lakes other than glacial. Although the greater number 



LAND FROM THE WATERS ini 

of drainable lakes and the largest aggregate area of them 
lie in the glaciated districts, there are many such in parts 
of the world where the ice-sheets have not shaped the sur- 
face. Other fresh-water basins are among the results of 
mountain-building actions which have lowered considerable 
areas, forming such lakes as the Dead Sea of Judea, or the 
extensive lakes of the upper Nile. Many of these basins 
are so deep, their bottoms often lying below the sea-level, that 
complete drainage is impossible in many, if not most in- 
stances. However, the conditions often make it possible to 
lower the surface of the water to such an extent that large 
fields of good land may be won. 

As a whole, the lake beds may be reckoned on as likely to 
afford, in the ages when the earth is crowded with men, a 
resource in the way of tillable lands in area comparable to 
that which may be had from the deserts, the morasses, and the 
shallow fringes of the sea. 



CONSERVATION OF NATIONAL RESOURCES 

[The President of the United States created June 8, 1908, a Na- 
tional Conservation Commission of five members, with Gifi'ord Pinehot 
as chairman, to inquire into the condition of the national resources. The 
final report of the Commission, made December 7, 1908, was a brief 
summary in about fourteen pages of tlie large body of information 
collected. The report was submitted to a Joint Conservation Con- 
ference meeting in Washington, December 10, 1908, and made up of 
governors of States, State Conservation Commissions, and representa- 
tives of numerous scientific and civic organizations. The Conference hav- 
ing heard the report and "having fully deliberated thereon," indorsed 
it "as a wise, just, and patriotic statement of the resources of the 
nation, of the thoughtless and profligate manner in which some of these 
resources have been and are being wasted, and of the urgent need for 
their conservation in the interests of this and future generations, to 
the end that the prosperity and perpetuity of the nation may be as- 
sured." 

The report opens with a general statement of the causes arousing 
public interest in the subject. Omitting this and a number of the 
recommendations of legislation contained in the report, the following 
extract reproduces almost entire the remarkably compact stateni,ent of 
facts regarding our national resources at the time of the report. The 
complete report accompanied by Proceedings of the Joint Conservation 
Conference, and by numerous scientific papers (in all nearly 1800 
pages) was published as Senate Document 676, for the 60th Congress, 
2d session. Vols. 10, 11, 12.] 

Minerals. The mineral production of the United States for 
1907 exceeded $2,000,000,000, and contributed 65 per cent, of 
the total freight traffic of the country. The waste in the 
extraction and treatment of mineral products during the same 
year was equivalent to more than $300,000,000. 

The production for 1907 included 395,000,000 tons of bi- 
tuminous and 85,000,000 tons of anthracite coal, 166,000,000 
barrels of petroleum, 52,000,000 tons of iron ore, 2,500,000 

102 



CONSERVATION OF RESOURCES 103 

tons of phosphate rock, and 869,000,000 pounds of copper. 
The values of other mineral products during the same year 
included clay products, $162,000,000; stone, $71,000,000; 
cement, $56,000,000; natural gas, $53,000,000; gold, $90,000,- 
000 ; silver, $37,000,000 ; lead $39,000,000 ; and zinc, $26,000,- 
000. 

The available and easily aeeessihle supplies of coal in 
the United States aggregate approximately 1,400,000,000,000 
tons. At the present increasing rate of production this sup- 
ply "will be so depleted as to approach exhaustion before the 
middle of the next century. 

The known supply of high-grade iron ores in the United 
States approximates 4,788,150,000 tons, which at the present 
increasing rate of consumption can not be expected to last 
beyond the middle of the present century. In addition to 
this, there are assumed to be 75,116,070,000 tons of lower 
grade iron ores which are not available for use under exist- 
ing conditions. 

The supply of stone, clay, cement, lime, sand, and salt 
is ample, while the stock of the precious metals and of copper, 
lead, zinc, sulphur, asphalt, graphite, quicksilver, mica, and 
the rare metals can not well be estimated, but is clearly 
exhaustible within one to three centuries unless unexpected 
deposits be found. 

The known supply of petroleum is estimated at fifteen billion 
to twenty billion barrels, distributed through six separate 
fields having an aggregate area of 8,900 square miles. The 
production is rapidly increasing, while the wastes and the 
loss through misuse are enormous. The supply cannot be 
expected to last beyond the middle of the present century. 

The known natural-gas fields aggregate an area of 9,000 
square miles, distributed through twenty-two States. Of the 
total yield from these fields during 1907, 400,000,000,000 cubic 
feet, valued at $62,000,000, were utilized, while an equal 
quantity was allowed to escape into the air. The daily waste 
of natural gas — the most perfect known fuel — is over 1,000,- 



104 CONSERVATION OF RESOURCES 

000,000 cubic feet, or enough, to supply every city in the 
United States of over 100,000 population. 

Phosphate rock, used for fertilizer, represents the slow 
accumulation of organic matter during past ages. In most 
countries it is most scrupulously preserved; in this country 
it is extensively exported, and largely for this reason its 
production is increasing rapidly. The original supply cannot 
long withstand the increasing demand. 

The consumption of nearly all our mineral products is 
increasing far more rapidly than our population. In many 
cases the waste is increasing more rapidly than the number 
of our people. In 1776 but a few dozen pounds of iron ore 
were in use by the average family; now our annual consump- 
tion of high-grade ore is over 1,200 pounds per capita. In 
1812 no coal was used ; now the consumption is over five tons 
and the waste nearly three tons per capita. 

While the production is increasing enormously, the waste 
and loss in mining are diminishing. At the beginning of our 
mineral development the coal abandoned in the mine was two 
or three times the amount taken out and used. Now the mine 
waste averages little more than half the amount saved. The 
chief waste is in imperfect combustion in furnaces and fire 
boxes. Steam engines utilize on the average about 8 per cent, 
of the thermal energy of the coal. Internal combustion en- 
gines utilize less than 20 per cent., and in electric lighting far 
less than 1 per cent, of the thermal energy is rendered avail- 
able. 

With increasing industries new mineral resources become 
available from time to time. Some lignites and other low- 
grade coals are readily gasified and, through the develop- 
ment of internal-combustion engines, may be made to check 
the consumption of high-grade coals. 

Peat is becoming important ; it is estimated that 14,000,000,- 
000 tons are available in the United States. Its value is en- 
hanced because of distribution through States generally 
remote from the fields of coal, oil, and natural gas. 



CONSERVATION OF RESOURCES 105 

The uses of all our mineral resources are interdependent. 
This is especially true of coal and iron, of which neither 
can be produced or used without aid from the other, and in 
the production or reduction of all other minerals both coal 
and iron are employed. The same standard minerals are 
necessary to the development of power, of which the use is 
increasing more rapidly than that of any other commodity. 

The building operations of the country now aggregate about 
$1,000,000,000 per year. The dn^ect and indirect losses from 
fire in the United States during 1907 approximated $450,000,- 
000, or one-half the cost of construction. Of this loss four- 
lifths, or an average of $1,000,000 per day, could Ije prevented, 
as shown by comparison with the standards of construction 
and tire losses in the larger European countries. 

So far as the ores are taken from the mines and reduced to 
metals, these resources are capitalized; but after thus being 
changed to a more valuable form they should be so used as to 
reduce to a minimum the loss by rust, electrolytic action, 
and other wastes. , . . 

"While the distribution and quantity of most of our im- 
portant mineral substances are known in a general way, there 
is imperative need for further surveys and investigations 
and for researches concerning the less-known minerals. 

Lands. The total land area of continental United States 
is 1,920,000,000 acres. Of this but little more than two- 
fifths is in farms, and less than one-half of the farm area is im- 
proved and made a source of crop production. We have 
nearly 6,000,000 farms; they average 146 acres each. The 
value of the farms is nearly one-fourth the wealth of the 
United States. There are more than 300,000,000 acres of 
public grazing land. The number of persons engaged in 
agricultural pursuits is more than 10.000,000. . . . 

There has been a slight increase in the average yield of 
our great staple farm products, but neither the increase in 
acreage nor the yield per acre has kept pace with our increase 
in population. Within a century we shall probably have to 



106 CONSERVATION OF RESOURCES 

feed three times as many people as now; and the main bulk 
of our food must be grown on our own soil. 

The area of cultivated land may possibly be doubled. In 
addition to the land awaiting the plow, 75,000,000 acres of 
swamp land can be reclaimed, 40.000,000 acres of desert land 
irrigated, and millions of acres of brush and wooded land 
cleared. Our population will increase continuously, but there 
is a definite limit to the increase of our cultivated acreage. 
Hence we must greatly increase the yield per acre. The av- 
erage yield of wheat in the United States is less than 14 bushels 
per acre, in Germany 28 bushels, and in England 32 bushels. 
We get 30 bushels of oats per acre, England nearly 45, and 
Germany more than 47. Our soils are fertile, but our mode 
of farming neither conserves the soil nor secures full crop 
returns. Soil fertility need not be diminished, but may be in- 
creased. The large yields now obtained from farms in Eu- 
rope which have been cultivated for a thousand years prove 
this conclusively. Proper management will double our av- 
erage yield per acre. The United States can grow the farm 
products needed by a population more than three times as 
great as our country now contains. 

The greatest unnecessary loss of our soil is preventable 
erosion. Second only to this is the waste, nonuse, and misuse 
of fertilizer derived from animals and men. 

The losses to farm products due to injurious mammals is 
estimated at $130,000,000 annually; the loss through plant 
diseases reaches several hundred million dollars ; and the loss 
through insects is reckoned at $659,000,000. The damage by 
birds is balanced by their beneficent work in destroying nox- 
ious insects. Losses due to the elements are large, but no 
estimate has been made of them. Losses to live stock from 
these causes are diminishing because of protection and feeding 
during winter. The annual losses from disease among do- 
mestic animals are: Horses, 1.8 per cent; cattle 2 per cent.; 
sheep, 2.2 per cent., and swine, 5.1 per cent. Most of these 
farm losses are preventable. 



CONSERVATION OF RESOURCES 107 

There is a tendency toward consolidation of farm lands. 
The estimated area of al)andoued farms is ]G,000 s((nare miles, 
or about 3 per cent, of the improved land. The causes of 
abandonment differ in different parts of the country. Where 
most prevalent, it is caused principally by erosion and ex- 
haustion of the soil. 

The product of the fisheries of the United States has an an- 
nual value of $57,000,000. Fish culture is carried on by the 
nation and the States on an enormous scale. Most of the more 
important food species are jDropagated, and several species are 
maintained in that way. Fish from forest waters furnish 
$21,000,000 worth of food yearly, a supply dependent on the 
preservation of the forests. 

Our wild game and fur-bearing animals have been largely 
exterminated. To prevent their complete extinction the 
States and the United States have taken in hand their protec- 
tion, and their numbers are now increasing. Forest game 
yields over $10,000,000 worth of food each year. 

With game birds the story is much the same — wanton de- 
struction nntil the number has been greatly reduced, followed 
in recent years by wise j)rotection, which in some cases allows 
the remnant to survive and even to increase. 

Each citizen of the United States owns an equal undivided 
interest in about 387,000,000 acres of public lands, exclusive 
of Alaska and the insular possessions. Besides this there are 
about 235,000,000 acres of national forests, national parks, and 
other lands devoted to public use. . . . 

Forests. Next to our need of food and water comes our 
need of timber. 

Our industries which subsist wholly or mainly upon wood 
pay the wages of more than 1,500,000 men and women. 

Forests not only grow timber, but they hold the soil and 
they conserve the streams. They abate the wind and give 
protection from excessive heat and cold. Woodlands make for 
the filler, health, and happiness of the citizen and the nation. 

Our forests now cover 550,000,000 acres, or about one- fourth 



108 CONSERVATION OF RESOURCES 

of the United States. The original forests covered not less 
than 850,000,000 acres. 

Forests publicly owned contain one-fifth of all our standing 
timber. Forests privately owned contain four-fifths of the 
standing timber. The timber privately owned is not only 
four times that publicly owned, but is generally more valuable. 

Forestry is now practised on 70 per cent, of the forests 
publicly owned and on less than 1 per cent, of the forests 
privately owned, or on only 18 per cent, of the total area of 
forests. 

The yearly growth of wood in our forests does not average 
more than 12 cubic feet per acre. This gives a total yearly 
growth of less than 7,000,000,000 cubic feet. 

We have 200,000,000 acres of mature forests, in which yearly 
growth is balanced by decay; 250,000,000 acres partly cut 
over or burned over, but restocking naturally with enough 
young growth to produce a merchantable crop, and 100,000,000 
acres cut over and burned over, upon which young growth is 
lacking or too scanty to make merchantable timber. 

We take from our forests yearly, including waste in logging, 
and in manufacturing, 23,000,000,000 cubic feet of wood. . . . 

Since 1870 forest fires have destroyed a yearly average of 
fifty lives and $50,000,000 worth of timber. Not less than 50,- 
000,000 acres of forest is burned over yearly. The young 
growth destroyed by fire is worth far more than the merchant- 
able timber burned. 

One-fourth of the standing timber is lost in logging. The 
boxing of long-leaf pine for turpentine has destroyed one-fifth 
of the forests worked. The loss in the mill is from one-third 
to two-thirds of the timber sawed. The loss of mill product in 
seasoning and fitting for use is from one-seventh to one-fourth. 

Of each 1,000 feet which stood in the forest, an average 
of only 320 feet of lunaber is used. 

We take from our forests each year, not counting the loss 
by fire, three and a half times their yearly growth. We take 
40 cubic feet per acre for each 12 cubic feet grown; we take 



CONSERVATION OF RESOURCES 103 

260 cubic feet per capita, while Germany uses 37 and France 
25 cubic feet. 

AVe tax our forests under the general property tax, a method 
abandoned long ago by every other great nation. Present tax 
laws prevent reforestation of cut-over land and the perpetua- 
tion of existing forests by use. 

Great damage is done to standing timber by injurious in- 
sects. ]\Iuch of this damage can be prevented at small ex- 
pense. 

To protect our farms from wind and to reforest land best 
suited for forest growth will require tree planting on an area 
larger than Pennsylvania, Ohio, and West Virginia combined. 
Lands so far successfully planted make a total area smaller 
than Rhode Island ; and year by year, through careless cutting 
and fires, we lower the capacity of existing forests to produce 
their like again, or else totally destroy them. 

In spite of substitutes we shall always need much wood. So 
far our use of it has steadily increased. The condition of the 
world's supply of timber makes us already dependent upon 
what we produce. We send out of our country one and a half 
times as much timber as we bring in. Except for finishing 
woods, relatively small in amount, we must grow our own 
supply or go without. Until we pay for our lumber what it 
costs to grow it, as well as what it costs to log and saw, the 
price will continue to rise. 

The preservation by use, under the methods of practical 
forestry, of all public forest lands, either in State or federal 
ownership, is essential to the permanent public welfare. In 
many forest States the acquirement of additional forest lands 
as State forests is necessary to the best interests of the States 
themselves. 

The conservation of our mountain forests, as in the Appa- 
lachian system, is a national necessity. These forests are re- 
(juired to aid in the regulation of streams used for naviga- 
tion and other purposes. The conservation of these forests is 
impracticable through private enterprise alone, by any State 



110 CONSERVATION OF RESOURCES 

alone, or by the Federal Government alone. Effective and 
immediate cooperation between these three agencies is es- 
sential. Federal ownership of limited protective areas upon 
important watersheds, effective State fire patrol, and the co- 
operation of private forest owners are all required. 

The true remedy for unwise tax laws lies not in laxity in 
their application nor in special exemptions, but in change in 
the method of taxation. An annual tax upon the land itself 
exclusive of the value of the timber, and a tax upon the timber 
when cut, is well adapted to actual conditions of forest in- 
vestment, and is practicable and certain. It is far better that 
forest land should pay a moderate tax permanently than that 
it should pay an excessive revenue temporarily and then cease 
to pay at all. 

Forests in private ownership can not be preserved unless 
they are protected from fire. We need good fire laws, well 
enforced. Fire control is impossible without an adequate 
force of men whose sole duty is fire patrol during the danger- 
ous season. 

The conservative use of the forest and of timber by Ameri- 
can citizens will not be general until they learn how to practise 
forestry. Through a vigorous national campaign in educa- 
tion, forestry has taken root in the great body of American 
citizenship. The basis already exists upon which to build 
a structure of forest conservation which will endure. This 
needs the definite commitment of State governments and the 
Federal Government to their inherent duty of teaching the 
people how to care for their forests. The final responsibility, 
both for investigative work in forestry and for making its re- 
sults known, rests upon the States and upon the nation. 

By reasonable thrift, we can produce a constant timber sup- 
ply beyond our present need, and with it conserve the useful- 
ness of our streams for irrigation, water supply, navigation, 
and power. 

Under right management our forests will yield over four 
times as much as now. We can reduce waste in the woods and 



CONSERVATION OF RESOURCES 111 

m the mill at. least oiic-lhird, with present as well as future 
l>rolit. We can perpetuate the naval-stores industry. Pre- 
servative treatment will reduce by one-fiith the (piautity of 
timber used in the water or in the ground. We can practi- 
cally stop I'oi'est fires at a cost yearly of one-fifth the value of 
the merchantable timber burned. 

We shall suffer for timber to meet our needs until our 
forests have had time to grow again. But if we act vigorously 
and at once we shall escape permanent timber scarcity. 

Waters. The sole source of our fresh water is rainfall, 
including snow. From this source all running, standing, and 
grountl w^aters are derived. The habitability of the country 
depends on these waters. Our mean annual rainfall is about 
thirty inches; the quantity about 215 trillion cubic feet per 
year, ecpiivalent to ten Mississippi rivers. 

Of the total rainfall, over half is evaporated ; about a third 
flows into the sea; the remaining sixth is either consumed or 
absorbed. These portions are sometimes called, respectively, 
the fly-off, the run-off and the cut-off. They are partly inter- 
changeable. About a third of the runoff or a tenth of the 
entire rainfall, passes through the Mississippi. The run-off 
is increasing with deforestation and cultivation. 

Of the 70 trillion cubic feet annually flowing into the sea, 
less than 1 per cent, is retained and utilized for municipal 
and community supply; less than 2 per cent, (or some 10 per 
cent, of that in the arid and semiarid regions) is used for ir- 
rigation; perhaps 5 per cent, is used for navigation, and less 
than 5 per cent, for power. 

For municipal and community water supply tliere are pro- 
tected catchment areas aggregating over 1.000,000 acres, and 
over $250,000,000 are invested in waterworks, with nearly as 
much more in the appurtenant catchment areas and other 
lands. The population so supplied approaches 10,000.000, and 
the annual consumption is about 37,500,000,000 cubic feet. 
The better managed systems protect the catchment areas by 
forests and grass ; the water is controlled and the storm prod- 



112 CONSERVATION OF RESOURCES 

uct used, but there is large waste after the water enters the 
mains. 

For irrigation it is estimated that there are $200,000,000 in- 
vested in dams, ditches, reservoirs, and other works for the 
partial control of the waters, and that 1,500 billion cubic feet 
are annually diverted to irrigable lands, aggregating some 
20,000 square miles. Except in some cases through forestry, 
few catchment areas are controlled, and few reservoirs are 
large enough to hold the storm waters. The waste in the pub- 
lic and private projects exceeds 60 per cent., while no more 
than 25 per cent, of the water actually available for irriga- 
tion of the arid lands is restrained and diverted. 

There are in continental United States 287 streams navi- 
gated for an aggregate of 26,226 miles, and as much more 
navigable if improved. There are also 45 canals, aggregating 
2,189 miles, besides numerous abandoned canals. Except 
through forestry in recent years, together with a few reservoirs 
and canal locks and movable dams, there has been little ef- 
fort to control headwaters or catchment areas in the interests 
of navigation, and none of our rivers are navigated to more 
than a small fraction even of their effective low-water 
capacity. 

The water power now in use is 5.250,000 horse-power; the 
amount running over government dams and not used is about 
1,400,00 horse-power; the amount reasonably available equals 
or exceeds the entire mechanical power now in use, or enough 
to operate every mill, drive every spindle, propel every train 
and boat, and light every city, town, and village in the coun- 
try. While the utilization of water power ranks among our 
most recent and most rapid industrial developments, little ef- 
fort has been made to control catchment areas or storm waters 
in any large way for power, though most plants effect local 
control through reservoirs and other works. Nearly all the 
freshet and flood water runs to waste, and the low waters 
which limit the efficiency of power plants are increasing in 
frequency and duration with the increasing flood run-off. 



CONSERVATION OF RESOURCES 113 

The practical utility ol" streams for both navigation and 
power is measured by the effective low-water stage. The 
volume carried when the streams rise above this stage is 
largely wasted and often does serious damage. The direct 
yearly damage by floods since 1900 has increased steadily from 
$J 5,000,000 to over $2:58,000,000. The intlirect loss through 
depreciation of property is great, while a large loss arises in 
impeded traffic through navigation and terminal transfers. 

The freshets are attended by destructive soil erosion. The 
soil matter annually carried into lower rivers and harbors 
or into the sea is computed at 783,000,000 tons. Soil wash 
reduces by 10 or 20 per cent, the productivity of upland farms 
and increases channel cutting and bar building in the rivers. 
The annual loss to the farms alone is fully $500,000,000, and 
large losses follow the fouling of the waters and the diminished 
navigability of the streams. 

Through imperfect control of the running waters lowlands 
are temporarily or permanently flooded. It is estimated that 
there are in mainland United States about 75,000,000 acres of 
overflow and swamp lands requiring drainage; that by sys- 
tematic operation these can be drained at moderate expense, 
and that they would then be worth two or three times the pres- 
ent value and cost of drainage, and would furnish homes for 
10,000,000 people. 

It is estimated that the quantity of fresh water stored in 
lakes and ponds (including the American portion of the Great 
Lakes) is about 600 trillion cubic feet, equivalent to three- 
years' rainfall or eight years' run-off. Some 6,000,000 of our 
people draw their water supply from lakes. 

A large part of that half of the annual rainfall not 
evaporated lodges temporarily in the soil and earth. It is 
estimated that the ground Avater to the depth of 100 feet 
averages 16% per cent, of the earth volume, or over 1,400 tril- 
lion cubic feet, equivalent to seven years' rainfall or twenty 
years' run-off. This subsurface reservoir is the essential basis 

of agriculture and other industries and is the chief natural re- 
s 



114 CONSERVATION OF RESOURCES 

source of this country. It sustains forests and all other crops 
and supplies the perennial springs and streams and wells used 
by four-fifths of our population and nearly all our domestic 
animals. Its quantity is diminished by the increased run- 
off due to deforestation and injudicious farming. Although 
the volume of the available ground water is subject to control 
by suitable treatment of the surface, little effort has been made 
to retain or increase it, and it is probable that fully 10 per 
cent, of this rich resource has been wasted since settlement be- 
gan. The water of the strata below 100 feet supplies artesian 
and deep wells, large springs, and thermal and mineral waters. 
It can be controlled only through the subsurface reservoir. 

■Of the 35 trillion cubic feet of cut-off, the chief share is 
utilized by natural processes or by agriculture and related in- 
dustries. On an average the plant tissue of annual growths 
is three-fourths and of perennial growths three-eighths water, 
of human and stock food over 80 per cent, is water, and in 
animal tissue the ratio is about the same ; and since water is the 
medium for organic circulation, the plants and animals of 
the country yearly require an amount many times exceeding 
their aggregate volume. Even in the more humid sections of 
the country the productivity of the soil and the possible human 
population would be materially increased by a greater rain- 
fall, leaving a larger margin for organic and other chemical 
uses. Except through agriculture and forestry little general 
effort is made to control the annual cut-off, although some 
farmers in arid regions claim to double or triple the crop from 
given soil by supplying water just when needed and withhold- 
ing it when not required. 

Water is like other resources in that its quantity is limited. 
It differs from such mineral resources as coal and iron, which 
once used are gone forever, in that the supply is perpetual; 
and it differs from such resources as soils and forests, which 
are capable of renewal or improvement, in that it can not be 
augmented in quantity, though like' all other resources it can 
be better utilized. . . . 



CONSERVATION OF RESOURCES 115 

The first requisite for waterway inipi-ovement is the control 
of the waters in such manner as to reduce floods and reguhite 
the retrimen of the navigable rivers. The second requisite 
is development oi' terminals and connections in such manner 
as to regulate commerce. 

In considering the uses and benefits to be derived from the 
waters, the paramount use should be water supply; next 
should follow navigation in humid regions and irrigation in 
arid regions. The development of power on the navigable 
and source streams should be coordinated with the primary 
and secondary uses of the waters. Other things equal, the 
development of power should be encouraged, not only to 
reduce the drain on other resources, but because properly 
designed reservoirs and power plants retard the run-off and so 
aid in the control of the streams for navigation and other 
uses. 

Broad plans should be adopted for a system of waterway 
improvement extending to all uses of the waters and bcnetits 
to be derived from their control, including the clarification of 
the water and abatement of floods for the benefit of navigation ; 
the extension of irrigation; the development and application of 
power ; tlie prevention of soil wash ; the purification of streams 
for Avater supply; and the drainage and utilization of the 
waters of swamp and overflow lands. 

'J'o promote and perfect these plans scientific investiga- 
tions, surveys, and measurements should be continued and ex- 
tended, especially the more accurate determination of rainfall 
and evaporation, the investigation and measurement of 
ground water, the gaging of streams and determination of 
sediment, and topographic surveys of catchment areas and 
sites available for control of the waters for navigation and re- 
lated purposes. 

National efficiency. [Here -were given a few of the data 
set forth more fully in the Report on National Vitality, a sum- 
mary of which is presented elsewhere in this book.] 

General conclusions. The permanent welfare of the naticm 



116 CONSERVATION OF RESOURCES 

demands that its natural resources be conserved by proper 
use. To this end the States and the nation can do much by 
legislation and example. By far the greater part of these re- 
sources is in private hands. Private ownership of natural re- 
sources is a public trust; they should be administered in the 
interests of the people as a whole. The States and nation 
should lead rather than follow in the conservative and efficient 
use of property under their immediate control. But their 
first duty is to gather and distribute a knowledge of our nat- 
ural resources and of the means necessary to insure their use 
and conservation, to impress the body of the people with the 
great importance of the duty, and to promote the cooperation 
of all. No agency, State, federal, corporate, or private, can do 
the work alone. 

Finally, the conservation of our resources is an immediate 
and vital concern. Our welfare depends on "conservation. 
The pressing need is for a general plan under which citizens, 
States, and nation may unite in an effort to achieve this great 
end. The lack of cooperation between the States themselves, 
between the States and the nation, and between the agencies of 
the National Government, is a potent cause of the neglect of 
conservation among the people. An organization through 
which all agencies — State, national, municipal, associate, and 
individual — may unite in a common effort to conserve the 
foundations of our prosperity is indispensable to the welfare 
and progress of the nation. To that end the immediate crea- 
tion of a national agency is essential. Many States and as- 
sociations of citizens have taken action by the appointment of 
permanent conservation commissions. It remains for the na- 
tion to do likewise, in order that the States and the nation, as- 
sociations and individuals, may join in the accomplishment of 
this great purpose. 



DEPRECIATION IN COTTON FACTORIES 

[In the Tariff Board's report on Cotton Manufactures the difficulties 
in arriving at a rate of depreciation of the plant are explained, and 
an average rate of depreciation is indicated. (House Document 643, 
62d Congress, 2d session; pub. March 26, 1912, p. 376.)] 

Depreciation. The schedule was so drawn up as to get 
not only the lump sum charged by different concerns under 
that head, but also the basis on which the charge was figured. 
For this reason the original value of the buildings and of the 
machinery and equipment were called for. In most instances, 
however, this proved an impossible task. Several companies 
have been in existence for decades, some of them dating back 
anywhere from one-half to three-quarters of a century, and 
their records failed to disclose the necessary information. In 
other cases companies have gone through one or more reorgani- 
zations, changing ownership, in which case they were fre- 
quently acquired as a going concern without any detailed rec- 
ord being preserved of the original physical value of the 
plant. It was therefore found more practicable to take as a 
basis the present appraisal value of the different plants. 
These values were in most cases ascertained from appraisals of 
mutual insurance companies, records of which were kept at the 
mills. In the few cases where no appraisals had been made 
the value was ascertained from original construction accounts 
and similar resources. 

The rate charged for depreciation differs from plant to 
plant. Some have one rate for buildings and another for 
machinery and equipment. Others carry the system still fur- 
ther and have different rates of depreciation for various parts 
of the plant, charging one rate for spinning machinery, an- 
other rate for weaving, and another for the boilers and power 

117 



118 DEPRECIATION IN FACTORIES 

plant, etc. Others, again, have one fiat rate, including; both 
buildings and machinery, although they recognize that the two 
are subject to different degrees of depreciation. In the case 
of one or two important companies it was found that the 
single rate of depreciation was carried still further, including 
not only machinery and buildings, but even the value of the 
real estate. Still others, as has been pointed out earlier in the 
discussion of the question of repairs and maintenance, carried 
no allowance for depreciation, but charged all additions to the 
plant by way of new machinery, extensions of buildings, etc., 
to the repair account, thus paying for it out of current earn- 
ings. 

It therefore becomes clearly apparent that some uniform rate 
for depreciation as well as repairs would have to be adopted. 
A modern mill equipped with looms of the latest construc- 
tion, which have been in operation only a few years, will mani- 
festly have an entirely different repair account from that of a 
mill with looms anywhere from twenty to fifty years old. Not 
only will the efficiency, and therefore the resultant labor cost 
per unit of product, be different in the two mills, but the actual 
expenses incurred for repairs will be vastly greater in one case 
as compared with the other. Repairs may vary greatly from 
year to year. A new plant may go on for a number of years 
incurring only a slight expense for repairs which makes up for 
the preceding years. An older mill, after running for several 
years, may spend a considerable amount of money on over- 
hauling the mill, charging the expense to repairs for that year, 
and, as a result of this, run for several years after that at a 
small expense. It would be purely a matter of accident for the 
investigation of the board to cover either the one or the other 
year, yet neither the heavy expense for repairs during the one 
year nor the very light expense during the intervening years 
would be a fair figure to be charged to the repair account. 

To arrive at an accurate estimate of the repair account would 
have required taking the repairs for several years and then 
averaging the amount. This could not be done without a care- 



DEPRECIATION IN FACTORIES 119 

fill audit of every item of expense to separate the expenses 
properly chargeable to repairs from those incurred for plant 
additions and betterments. With the limited time at the dis- 
])osal of the board such a procedure was out of the question. 
The only way out of the difficulty was, therefore, to arrive at a 
normal rate for depreciation and repairs, based upon the ex- 
perience of leading engineers engaged in the erection of textile 
plants and the installation of textile machinery. After a con- 
sultation with such engineers and a leading appraisal com- 
pany in the United States, which has appraised a large number 
of textile plants both in the cotton and woolen industries at 
different stages in the lives of the plants, it was found that a 
fair normal rate to be allowed for cotton-manufacturing plants 
for depreciation and repairs would be 2iA per cent, on build- 
ings and 5 per cent, on machinery and equipment, and this rate 
was uniformly charged for all plants. In apportioning the 
total allowance between repairs and depreciation, the repair 
expense actually incurred during the year under investigation 
was deducted from the amount equal to 5 per cent, on the 
value of the machinery and 2i/2 per cent, on buildings, and the 
difference thus obtained was allowed for depreciation. It 
should be noted that in any case the element of depreciation 
is a very small factor in the cost of production per unit of 
product. 



CAPITALIZATION AND URBAN LAND VALUES 

[From the Principles of City Land Values, by R. M. Hurd, cited 
above on the subject of rents, are taken the following cogent expres- 
sions of broad experience on the subject of capitalization.] 

Capitalization rate [page 129]. With .an established 
economic rent, the sole remaining factor to transform this 
into intrinsic value ^ is the rate of capitalization. As capitali- 
zation rates vary with securities, Government bonds selling 
below a 2 per cent, basis, railroad bonds and stocks on a 31/2 
to 5 per cent, basis, and industrials on a 7 to 10 per 
cent, basis, so the rates of capitalization of urban rents vary 
from 4 per cent, for the highest class of property in the largest 
cities, to 5 and 6 per cent, for second-class property in the 
same cities, or for first-class property in smaller cities, 7, 8 and 
10 per cent, for tenements in the largest cities, and 12 to 15 
per cent, for temporary utilization or disreputable purposes 
in the smaller cities. The great power of capitalization rates 
on values is due to the fact that for every change of 1 per 
cent, in the rate of capitalization, values may change from 
twelve to twenty -five times the difference in interest. For 
example, a property with a net income of $10,000 would sell on 
an 8 per cent, basis at $125,000, on a 6 per cent, basis at 
$166,000, and on a 4 per cent, basis at $250,000. The lower 
the capitalization rate the greater the effect of any changes 
of values: For example, a fall from 8 to 7 per cent, 
adds but 14 per cent, to the value of the property, while a fall 
from 5 to 4 per cent, adds 25 per cent, to the value 
of the property. Moreover, as low interest rates apply to the 

1 ["Intrinsic value," a tenn with a good many troublous implications, 
may be here understood as valuation, or capitalization. — Ed.] 

120 



URBAN LAND- VALUES 121 

larcrest properties all further fractional lowering of rates re- 
sults iu an enormous mass of values. The marked difference 
between capitali/atiou rates of high-class and low-class prop- 
erty in the same city indicates the large number of people 
who desire to own high-class property, and the few who desire 
to own low-class property. The reason for such preference is 
that with high-class property, rents are more stable and easily 
collected, the property is more quickly and certainly convert- 
ible, it can be mortgaged at a lower rate of interest and for a 
larger percentage of value, the buildings depreciate much less 
rapidly and the prospects of increase in value are better. 

Land a slow asset. That land, even of the highest type and 
in the largest cities, is a slow asset, is due to a number of 
causes, among them being the fact that land is not easily 
passed from hand to hand as are stocks and bonds, land in- 
volves personal or directly deputed management, where stocks 
and bonds do not, there is no Exchange with daily quotations 
giving the values of land, as with stocks and bonds; and 
finally the value of land is influenced by many complex chang- 
ing factors, whose effects are differently estimated by differ- 
ent people. Because land is a slow asset, convertibility or 
certainty and speed in selling it, produces a high premium for 
the best property by lowering its capitalization rate. 

Farm acreage to city sites.^ Starting from the condition of 
no value in land when a city originates, let us consider the 
scale of average values of residence and business land in cities 
of various sizes, land used for other purposes being omitted as 
being more of an individual problem. At the outer circumfer- 
ence of cities land is held as acreage, the prices per acre ad- 
vancing from the normal value of farm land near cities, $50 
to $150 per acre, up to market-garden land, which may earn 
interest on $300 to $1,000 per acre, and, finally, to speculative 
tracts held at $500 to $5,000 per acre, whose prices are based on 
the estimated earnings of the land when it secures the an- 

i[The following paragraphs rcprodiuo (lie thapter cntitk'd, "Scale of 
Average Values," pp. 133-144.] 



122 URBAN LAND-VALUES 

ticipated utilization. Since the proportion of land occupied 
by streets averages about 35 per cent., the conversion of acre- 
age into lots means a loss in building area of that percentage, 
so that with the expenses of platting, opening streets, taxes, 
loss of interest, etc., it is generally estimated that property 
bought by the acre must sell by the lot for double the acre 
price in order to avoid loss in handling. 

Mechanics' residence lots. The cheapest lots in any city 
are those utilized for workmen's houses, varying in smaller 
cities from $150 to $300. The larger the city the larger the 
number of well-paid mechanics and the greater the effective 
demand for lots. A mechanic's lot on the outskirts of a 
small city differs from one on the outskirts of New York not 
only in price but in size, those in small towns having 50 to 60 
feet frontage, and those in New York 15 to 20 feet frontage 
with usually two-family houses on them. Thus an average 
price of $150 for 50 x 100 foot lots in large cities would be 
equivalent to $7,700 per net acre after platting, or $5,000 per 
acre as acreage. In the outskirts of the smaller cities platted 
land runs as low as $2 to $4 per front foot, and there are 
built up mechanics ' sections with street car accommodation less 
than a mile from the center of cities of 30,000 population, 
where land sells at but $5 per front foot, equivalent to 5 cents 
per square foot. 

Better residence lots. From this figure, land for detached 
residences grades upwards more in proportion to the class of 
people utilizing it than the size of the city, to land worth $20 
to $30 per front foot for the residences of small shopkeepers 
and clerks, and $40 to $75 for the more fashionable residences 
in cities of 75,000 population and under. Such residence prop- 
erty would have good street car service, graded streets, side- 
walks, sewer, gas, water, electric light, etc., the cost of which 
may vary from $5 to $15 per front foot. The best residence 
land in cities of 100,000 to 200,000 population runs from $75 
to $150 per front foot, in cities of 200,000 population to 400,- 
000 population from $300 to $500 per front foot, and in New 



URBAN LAND-VALUES 123 

York from $2,000 to $5,000 per front foot on the side streets 
ami $G,000 to $9,000 per front foot on Fifth Avenue. 

Business lots. The poorest k)cations utilized for shops in 
the small cities are ordinarily worth from $50 to $75 per front 
foot from which point values rise to an average of $600 to 
$800 per front foot for the best business property in cities of 
50,000 population, about $2,000 per front foot in cities of 200,- 
000 population, $10,000 in cities of 2,000,000 population, and 
$15,000 to $18,000 in New York. Above these levels, land in 
the financial district of New York a\erages from $15,000 to 
$25,000 per front foot, this liuancial district having no counter- 
part in any other American city and being due to the su- 
premacy of New Y^'ork as a financial center. The highest 
values in London are similarly in the financial district, while 
in Chicago and most of the smaller cities, shopping land, owing 
to the large amount of retail business and small amount of 
banking, is worth about twice as much as financial land. The 
average figures given represent corner lots having not less 
than 2500 square feet, $350 per square foot (equal to $35,000 
per front foot) having been paid thirty years ago for two 
small corners at AVall and Broad Streets, and recently for a 
small corner at Broadway and Thirty-fourth Street. An ap- 
proximate scale of normal values based on the consideration 
that each thousand of population adds from $10 to $12 to the 
front-foot value of the best business locations and from $1 to 
$2 to the front-foot value of the best residence locations would 
be as follows, it being understood that the application of any 
such scale is limited in practice by differences in wealth, 
character of industries and inhabitants, topography, transpor- 
tation, platting, climate, etc. 

Ratio of business and residence value. The proportion 
between land values due to different utilities varies widely in 
different cities, evidencing the response of special sections to 
special forces. Thus the best business and the best residence 
land in tlie same city shows in New York, with $35,000 per 
front foot for business and $9,000 per front foot for residence 



124 URBAN LAND- VALUES 





TABLE I. 








City 


Best business 


Best residences 


[Ratio of 


)opulation. 


per front foot. 


per front foot. 


highest. 


25,000 


$300 to $400 


$25 to $40 


10.0: 




50,000 


600 to 1,000 


40 to 75 


13.3 




100,000 


1,200 to 2,000 


75 to 150 


13.3: 




150,000 


1,500 to 2,500 


100 to 200 


12.5 




200,000 


1,800 to 3,000 


100 to 300 


10.0 




300,000 


2,500 to 4,500 


200 to 500 


9.0 




600,000 


4,000 to 7,000 


500 to 1,000 


7.0 




1,000,000 


7,000 to 10,000 


700 to 1,500 


6.6 




2,000,000 


0.000 to 16,000 


1.000 to 2,000 


8.0 




3,500,000 


18,000 to 35,000 


4,000 to 9,000 


4.0 


:1] 



land, a proportion of about 4 to 1 ; in Buffalo with $4,500 for 
business land and $500 for residence land a proportion of 9 to 
1 ; in Minneapolis with $2,500 for business and $100 for resi- 
dence land a proportion of 25 to 1; and in Seattle with 
$2000 for business and $100 for residence, a proportion of 20 
to 1. When we turn to Southern cities, Richmond with $1,600 
for business and $300 for residence shows a proportion of 5 to 
1 ; and Atlanta wdth $2,000 for the best business and $200 for 
the best residence, a proportion of 10 to 1. As explaining this 
difference between Western and Southern cities, business is 
active and progressive in Western cities, producing high busi- 
ness values, while residences are scattered by the trolley and 
are not held together by the old-established residence sections, 
whereas in Southern cities the scale of business operations is 
less, partly owing to the diminished purchasing power of the 
negroes, resulting in low business values, while residence values 
are raised by the greater importance attached to social con- 
siderations and the greater age of the cities. The abnormally 
high values of residence property in New York testifies to its 
limited quantity and to the keen demand for it on the part of 
the many millionaires who make New York their home. 

Wholesale business. Heavy wholesale property responds 
but feebly to increased population, varying from $100 to $400 
in value in cities of 300,000 people or under. Where values 
run above these figures the property would include some retail 
feature. The proportion of value between the best retail land 



URBAN LAND-VALUES 



125 



and [\\o bi'st wliolesalc is, therefore, one which increases with 
the size of the eity, ranging from 4 to 1 in the smaller cities, 
up to 10 to 1 in the largest. As examples of the value of the 
best retail, best wholesale and best residence land in various 
cities, the following list of front foot values is submitted. 



Population.! 

New York 3,437,202 

Financial land.. . . 

Chicago 1,608,575 

Financial land.. . . 

Philadelphia 1,293,697 

Washington 278,718 

Louisville 204,731 

^Minneapolis 202,718 

Indianapolis 169,164 

Kansas Cit J- 163,752 

St. Paul 163,065 

Denver 133,859 

Toledo 131,822 

Memphis 102,320 



Portland, Ore. 

Atlanta 

Richmond 

Seattle 

Des INIoines. . . . 
Salt Lake City. 

Duluth '. . 

Spokane 



90,426 
89,872 
85,050 
80,671 
62,139 
53,531 
52,969 
36,848 



Best 

retail. 

$18,000 

35,000 

15,000 

8,000 

11,000 

5,000 

1,700 

2,500 

2,500 

2,500 

1,800 

1,800 

2,000 

2,000 

1,600 

2,000 

1,800 

2,000 

1,500 

1,400 

1,000 

800 



Best 

wholesale. 

$3,000 



Best 
residence. 
$9,000 



2,000 



400 
400 
400 
450 
400 
250 
300 
400 
300 
400 
150 
400 
200 
200 
300 
200 



2,000 

'2,006 

500 

150 

100 

150 

150 

150 

100 

150 

60 

70 

200 

200 

80 

75 

75 

65 

60 



Nature of city-growth [page 145]. 2 The total value of a 
city 's site is broadly based on population and wealth, the physi- 
cal city being the reflex of the total social activities of its in- 
habitants. Whatever the type of city, growth consists of 
movement away from the point of origin and is of two kinds ; 
central, or in all directions, and axial, or along the water- 
courses, railroads and turnpikes which form the framework of 
cities. Modern rapid transit stimulates axial growth, pro- 
ducing star-shaped cities, whose modification in shape comes 
chiefly from topographical faults. . . . 

i[rpnsus figures for 1900.] 

-|The following paragraphs cnnlnin the larger part of the last chapter, 
the summary of the book, but omit the diagrams and charts.] 



120 URBAN LAND-VALUES 

[Page 148.] While the outward glacial movement of a city 
continues, the daily currents of travel within alter its internal 
structure. The fluidity of daily traffic shifts utilities, creates 
plastic conditions in cities and keeps values in a state of un- 
stable equilibrium. 

Elements in a forecast of land-value. To look at the prob- 
lem from the individual standpoint, in attempting to state the 
value of any single property, the inquiry would seek first, upon 
what forces does the city itself depend, how permanent are 
they, how diversified, are they strengthening and what is the 
resulting index figure, to wit, the rate of increase of the city's 
population ; next, what are the characteristics of the section of 
the city in which the property is located, its past history, its 
present stability, its future prospects; what is the central 
strength of the property, how near the main center of the city 
or the various subcenters of attraction; what is its axial 
strength, the quantity, quality and regularity of the passing 
travel, what is the character of building on the property as to 
suitability, planning, physical condition, prospect of changing 
utility, management, convertibility, gross and net income; at 
what prices have surrounding property been selling, are they 
rising or falling, and do they suggest any factors not yet taken 
into account; is the property liable to be injured or benefited 
by changes in the building laws; is there any special enter- 
prise or strength on the part of the owner or of surrounding 
owners likely to affect the property, what would be the prob- 
able effect of any inventions or improvements in transporta- 
tion or the construction of buildings; and, finally, what are 
the general commercial conditions as affecting the earning 
power of tenants, actual or prospective, and financial condi- 
tions as affecting the capitalization rate. 

The problem is never a simple one, being as complex as city 
life itself, but it is not insoluble, since the forces creating cities 
are governed by uniform laws, like causes producing like re- 
sults, apparent exceptions being due to the influence of factors 
not reckoned on. The popular impression that the ability to 



URBAN LAND-VALUES 127 

forecast future movomoiits of city growth points a quick way 
to fortune is an overestimate, since real estate movements are 
slow, large capital is reciuired to handle it, carrying charges 
are heavy, and even though the forecast may be ultimately 
correct, tlie rate of movement is uncertain, depending on the 
operation of vast economic forces impossible of exact predic- 
tion. 

Unequal changes in values. If business expands and pop- 
ulation increases in a city, the sum total of land values is cer- 
tain to increase. All the land, however, will by no means 
increase in value, the great mass of medium business and 
residence property advancing but slowly since it supplies the 
wants of a large number of people of moderate earning power 
who cannot pay beyond a certain price. Coincident with the 
gradual lifting of values as population becomes more dense, 
decaying sections, left behind in the onward march, drop down 
the scale of inferior utilities and values, sometimes to the point 
of extinction. Such worn-out property exhibits in its dilapi- 
dations both absence of utility and public confession of that 
fact. If population and business become stationary the sum 
total of land values will decrease in proportion to the previous 
discounting of future growth, subsequent movements consist- 
ing of redistribution of value, as one part of the city or an- 
other, or one individual or another, flourishes or declines. 

1"he principal causes of the redistribution of value in all 
oities are, increase in population and wealth, especially in 
causing relocation or extension of the best residence district, 
changes in transportation, such as new surface, elevated, or 
underground lines, new bridges, tunnels, ferries and railroads, 
and the readjustment of new utilities in new areas harmoniz- 
ing the complex contending factors. 

Present tendencies point towards greatly increased values 
at strategic points, with relative and frequently absolute drops 
in value in locations formerly competitive. The quiet side 
streets, the back alley^ and deserted nooks and corners where 
land has almost no value, despite its proximity to valuable 



128 URBAN LAND-VALUES 

land, will doubtless continue at their present low planes, un- 
less they are either reached by the spreading growth from 
some center or are intersected by some new traffic street. 

The most valuable location. The point of highest value, 
responding in scale and location to the growth of the city, 
moves from the first business center towards the best residence 
district, the crest of the wave usually being the middle of the 
retail shopping district, frequently strengthened by excep- 
tionally large and handsome buildings, and occasionally 
checked by cross-traffic streets. Apart from any factors which 
may deflect the line of growth, the land lying in its path is 
certain to increase in value, the time of such increase however, 
being difficult to gage, while the land left behind will usually 
sink in value, although in the largest cities, while decreasing 
relatively in value and utility, it sometimes increases slightly 
in absolute value. New York, the one financial center of the 
country, is an exception in that its financial land is more val- 
uable than its shopping land. 

Causes of future changes. New inventions and new habits 
and customs will probably cause the most marked future 
changes other than those due to growth and transportation. 
All cheapening of the cost of buildings, all improvements in 
construction, all inventions, tend constantly to destroy the 
value of existing buildings. All improvements in transporta- 
tion, such as the trolley, the elevated, the underground, the 
bicycle, the automobile — and in future possibly the flying ma- 
chine — tend to destroy the value of these locations which de- 
pend on existing transportation. All changes in social cus- 
toms, such as longer summer absences from the city, shift 
values, as in this instance from the city to the summer resorts. 
The great interchange of travel throughout the year from one 
city to another strengthens the radiating influence of the 
hotels, while the movement from residences to flats and apart- 
ments, concentrates population and augments the power of 
capital to attract. 

Change is a law of lifC; and as long as human activity con- 



URBAN LAND-VALUES 129 

tinues to alter the conditions of city life, and human tastes, 
prejudices, fashions, habits and customs continue to vary, city 
structure and values will shift and change, but the study of 
the basic principles of city growth should reduce errors in 
forecasting to a minimum, permitting Avell-equipped intelli- 
gence, whether in buying, selling, renting, loaning on, or in 
any way dealing- with, city real estate, to largely eliminate the 
power of chance. 



SOME EXAMPLES OF INCREASING LAND-VALUES 

[In The A. B. C. of Taxation (New York, Doubleday, Page and Co., 
1909), C. B. Fillebrown, president of the Massachusetts Single Tax 
League, has estimated the ground rent of Boston, and has given a 
number of examples of changes in the valuation of real estate. By 
the kind permission of the author the following extracts are here 
given without the accompanying argument in favor of the single tax, 
of which Mr. Fillebrown is a zealous, but fair-minded, advocate.] 

A calculation of Boston's ground rent [page 16]. In a 
systematic attempt ... to demonstrate beyond a reasonable 
doubt about how much gross ground rent there is in the city 
of Boston, actual sales for the year 1902 and actual rentals 
have been collected from official sources. 

One hundred and twenty pieces of real estate in various 
sections of the city are shown to have been sold at prices aver- 
aging one-fifth higher than their assessed valuation, indicating 
that at least in these one hundred and twenty cases the valu- 
ations were less than five-sixths of the selling price. 

Landlords and real estate men are the best judges of the 
following calculation which, taking into account the fact that 
the prices given in these tables are those indicated by the 
revenue stamps on deeds, assumes that the buildings sold for 
one-third more than their assessed valuation: 

Deducting from the total of prices indicated by the footing 

of the 120 sales $7,291,375 

Four-thirds of assessed valuation of buildings 2,772,933 

Would give perhaps a fair estimate of what the land sold for 4,518,442 
To this it is necessary to add the capitalized tax upon the 
land for the same year, 1900, $3,758,600 x $14.70 (the 
number of dollars tax per thousand) x20 (the number of 
years' purchase) 1,105,028 

In order to get the gross capitalized ground rental value of 

the land 5,623^70 

Of which the assessed valuations were only two-thirds. 

130 



INCREASING LAND-VALUES 131 

Seven hmuliecl ami lU'ty-one rentals of estates, together with 
tlieir assessed valuations, averaging $47,680 each, were also 
obtained from reliable sources. In the total for these it is 
found that the net rent is 5 per cent. (4.8), and the gross 
rent — net rent plus taxes — is 6 per cent, of the assessed valu- 
ation. That is to say, the net value, based upon net income 
to the owner, corresponds with the assessed valuation, and is 
five-sixths of the gross value, based upon what the user pays 
for the land. It is probable that these estates are in the aggre- 
gate improved to less than one-half of their normal efficiency, 
and hence the income which they now yield is less than 5 per 
cent, of the price that they would actually sell for. 

In the absence of contradictory or correcting testimony, it 
is fair to ask the reader to accept these lists of 120 sales and 
751 estate rentals respectively as an indication of the ratio ex- 
isting between assessed valuation and selling value. 

Based upon the foregoing ratio, the following conservative 
estimate of the gross land value of Boston is submitted for 
scrutiny and criticism : 

If the assessed valuation of Boston's land for 1907, which 

is in round numbers $ 653,000,000 

Is five-sixths of its selling value, then the addition of 

one-fifth 130,600,000 

Would give us as the net selling value 783,600,000 

Adding to this the capitalized value of the amount of 
tax now on the land, $15.90 per thousand on $653,- 
000,000, or $10,382,000 at twenty years' purchase 207,600,000 

Would give us as the true capitalized ground rental value 991,200,000 
Add moderate estimate for franchises, say 108,800,000 

And we should have a total capitalized ground-rental 

value of at least 1,100,000,000 

At 5 per cent, this would indicate for Boston a ground 

rent of 55,000,000 

or considerably more than double the total taxes of 
Boston. • . . 

An object lesson in land values [page 56]. In this and 
the following object lessons the valuations, luiless otherwise 
noted, are those of 1907. The total valuations on both sides 



132 INCREASING LAND-VALUES 

of Winter Street, including the estates on the Tremont and 
Washington Street comers, were : 



1898 . . 


.. $5,142,600 


$61.57 per sq. 


ft. 


$2,681,989 per acre. 


1907 .. 


. . 8,272,000 


97.50 per sq. 

BUILDINGS. 


ft. 


4,247,100 per acre. 


1898 . . 


. . $675,000 


$8.08 per sq. 


ft. 


$353,836 per acre. 


1907 .. 


605,200 


7.13 per sq. 


ft. 


310,582 per acre. 



Showing for nine years an increase of 58 per cent, in land, 
and a decrease of 11 per cent, in buildings. 

The assessed valuation of the estate at the southwest corner 
of Winter and Washington Street was in 1907 $557,000 of 
which $19,400 was for buildings. The land alone, 1,955 square 
feet, increased from $342,000, $175 per square foot, in 1898, to 
$537,600, $275 per square foot, in 1907. This assessed valua- 
tion of $275 per square foot for land is the highest in Boston. 
In 1893 the estate had been sold for $350,000. The present 
building was erected in 1881, but it is no distinct improvement, 
in height or otherwise, over its predecessor. . . . 

In 1907 the estate was paying the owner an income of about 
$25,000. The Transit Commission took this estate by eminent 
domain, and settled for it in 1908 for $630,000 or $320 per 
square foot for the land and buildings. After appropriating 
subway station accommodations, it leased the balance of the 
estate for the sum of $28,000 a year and taxes, or $36,000 as 
long as no taxes are assessed. This is a return of about 4^/2 
per cent, net on the purchase price of $630,000, on which sum 
the city is paying — as the money was borrowed — about 4 per 
cent, . . , 

[Page 59.] The land in Winter Street, which was assessed 
at less than $4 per square foot in 1850, was assessed in 1907 at 
$130 per square foot. During the fifty-seven years interven- 
ing, the income, above taxes, from the land, in rent and appre- 
ciation has amounted to an average of 150 per cent, annually 
on the investment of 1850. . , . 

Ratio of buildings to land [page 62]. Massachusetts has 



INCREASING LAND-VALUES 13:? 

fourteen counties. lu every one ol" thirteen of these counties 
the assessed value of the buihlings exceeds and in most cases 
largely exceeds the assessed value of the laud. In the one 
other county, Suffolk (Boston, Chelsea, Eevere, and Win- 
throp"), containing- 49 per cent, of the whole land value of the 
state, the buildings fall far below the land in value. 

Again, eighty-eight towns (out of Massachusetts' 354 cities 
and towns), having lowest valuations, show average assess- 
ments as follows: Of buildings, $130,000; of land, $145,000. 
. . . The following figures show Winter Street in company 
with the three smallest towns: 

Buildings. Land. Ratio. 

Mashpee $ 46,530 $ 140,020 33-100 

Peru 22,680 84,825 27-100 

Florida 30,790 1 19,246 25-100 

Winter St., Boston. 605,200 8,272,000 7-100 

For the coimty of Suffolk, which contains the city of Boston, 
as well as for the State, no such discrepancy appears. Fol- 
lowing are the figures : 

Buildings. Land. Ratio. 

County of Suffolk.. $ 444,441,725 $ 673,208,750 66-100 

Other 13 counties.. 949,283,781 679,071,599 140-1,00 

Whole state 1,393,725,486 1,352,280,349 101-100 

In the twelve following large cities and towns the value of 
the buildings greatly exceeds that of the land. 

Buildings. Land. Ratio. 

Lenox $ 2.306.500 $ 1.731,375 133-100 

PittsHeld 8,685,715 6,971,255 124-100 

North Attleborough 2,411.210 1,256,613 191-100 

Gloucester 9,388.650 7,886,470 119-100 

Haverhill 12,392,960 9,772,050 126-100 

Lawrence 22,854.800 18,587,850 123-100 

Lvnn 29,892,705 23,238,785 12S-100 

Hulvoke 18,194,860 15,450,380 117-100 

Springfield 37,188,415 36,131,445 103-100 

Cambridge 49,245,700 39,989,600 123-100 

Lowell 33,293,590 26,389.020 126-100 

Wewton 27,.590,.325 22.878,475 120-100 

Total 253,445,430 210,289,318 120-100 



134 INCREASING LAND-VALUES 

In the following seventeen cities and towns, representative 
of their class, the valuation of the buildings is in the average 
double that of the land : 

Buildings. Land. Ratio. 

Athol $ 2,324,908 

Clinton 4,246,230 

Abington 1,749,697 

Plymouth 5,477,025 

Amherst 1,839,225 

Chicopee 6,115,900 

Amesbury 2,841,815 

Newburyport 5,269,850 

Adams 2,598,950 

North Adams 7,257,210 

Attleborough 5,479,385 

Taunton 11,024,365 

Easthampton 3,412,906 

Rockland 2,346,350 

Chelsea 14,600,570 

Blackstone 1,244,065 

Gardner 3,767,096 

Total 81,595,727 

Another illustration [page 86]. The St. Paul's Church 
property on Tremont Street, Boston, standing between two 
large stores, furnishes another good illustration of what we 
have been saying and reiterating. 

Less than ten years ago $1,500,000 was offered for this prop- 
erty for business purposes, and the offer was declined. Since 
then the assessed valuations of the adjacent Tremont Street 
estates between "Winter Street and Temple Place have in- 
creased more than 75 per cent. In view of these facts it 
should be very conservative to estimate to-day : 

The value of St. Paul's Church property at $2,000,000 

For this value the St. Paul Society paid in 1820 100,000 



$ 1,204,097 


193-100 


1,967,307 


215-100 


634,610 


275-100 


2,206,250 


248-100 


899,535 


204-100 


2,221,270 


275-100 


1,397,681 


203-100 


2,379,681 


221-100 


1,085,300 


239-100 


4,827,075 


150-100 


3,474,395 


158-100 


5,214,520 


211-100 


408,720 


836-100 


891,323 


263-100 


8,922,300 


163-100 


760,410 


163-100 


1,395,618 


270-100 


39,890,011 


205-100 



The people of Boston have since contributed by their aggre- 
gate and particular activities, industries and expenditures 1,900,000 
An annual contribution for 87 years of much above 20,000 

But, in recent years, this increase in value has been at the 

annual rate of not less than 75,000 



INCREASING LAND-VALUES 133 

Church property heing oxompt from tnxation. the people of 

Boston liave to make up the amount of the exemption. 

This, in the case of St. Paul's is $22,500, and for all 

church property in the city is $38.5,000, a year. 
If then to the above average annual contribution of the 

public there be added these taxes for 1907, more than.... 22,000 

The total annual contribution amounts to 97,000 

An amount equal to the 5 per cent, ground rent of almost 
$2,000,000 worth of land, or to the taxes, at $15.90 per 
thousand, on $6,100,000 worth of property ! . . . 

The undervaluation of urban or village land [page 125]. 
A few illustrations will show how this potential agency, 
ground rent, escapes observation both in small and large towns, 
and in small cities as well. 

In the following illustrative examples, the ratio between 
assessed valuation and actual net value of land, as indicated 
by actual rentals, is calculated by deducting from the net 
income of the entire estate (i.e., total income less taxes) 
an amount equal to 10 per cent, of the assessed valuation of 
the buildings, to cover interest, insurance, repairs, and de- 
preciation. Twenty-five specimen estates in Lawrence, Scitu- 
ate, Clinton, and Whitman, Mass., show ratios, thus 
calculated, as follows: 

25 estates . . . average tax rate per thousand $16.85 

r Land $ 197,828 

Assessed valuation J Buildings 236.955 

[ Total 434,783 

Gross rental of properties actually received by the owners.. 56,067 

Taxes (on $434,783, at $16.85 per thousand) 7,325 

Net rental after paying all taxes 48,742 

Less 10 per cent, on buildings ($236,955) for interest, in- 
surance, repairs, and depreciation 23,695 

Met income from land alone (equaling 12 per cent, on 

$197,828) 25,047 

This income is 5 per cent, return on an indicated net value 

of at least 500,940 

Instead of less than 40 per cent, of that amount, or the 

amount at which the land is assessed 197,828 



136 INCREASING LAND-VALUES 

Leaving out the city of Lawrence, the ratio for the three 
smaller communities of Scituate, Clinton, and Whitman av- 
erages only 30 per cent. 

The figures for the above twenty-five estates in detail are 
as follows: 

In Lawrence, a cotton manufacturing city of 70,000 in- 
habitants, of seven estates the several assessed valuations were 
respectively 72, 67, 62, 48, 42, 38, and 15 per cent, of the 
net value. The average valuation was 48 per cent, of the net 
land value. 

In Scituate, Mass., a shore town of 2600 inhabitants, of four 
estates the several assessed valuations were respectively 52 V^, 
50, 48, and 13 per cent, of the net value. The average assessed 
valuation was 37 V^ per cent, of the net land value. 

In Clinton, a manufacturing town of 13,000 inhabitants, of 
five estates the several assessed valuations were respectively 
38, 37, 341/2, 271/2, and 221/2 per cent, of the net value. The 
average assessed valuation was 32 per cent, of the net land 
value. 

In Whitman, a shoe manufacturing town of 6500 inhabit- 
ants, of nine estates the several assessed valuations were re- 
spectively 83, 62, 451/2, 43, 32, 27, 23, 19, and 14 per cent, 
of the net value. The average assessed valuation was 21 
per cent, of the net land value. . . . 

The minor importance of agricultural rent [page 129], 
The Massachusetts valuations for 1907 offer a market illus- 
tration. . . . 

Assessed valuations. Land. Buildings. Total. 

33 cities $1,088,329,177 $ 998,896,745 $2,087,225,922 

37 large towns 139,965,083 178,810,787 318,775,870 

70 cities and towns. 1,228,294,260 1,177,707,532 2,406,001,792 

284 small towns 123,986,089 216,017,954 340,004,043 



354 cities and towns 1,352,280,349 1,393,725,486 $2,746,005,835 

Thus the land valuations of the 284 small towns ($123,- 
986,089) and of the 70 cities and large towns ($1,228,294,260) 



INCREASING LAND-VALUES 137 

are seeu to be about in tlie ratio oi' one to ten. Nor must it 
be overlooked, that there is a larger proportion of urban prop- 
ert}' in small towns ^ than of farm property in the large ones. 
The State census, which gives farm values by themselves, cor- 
roborates the above estimate. 

1 [The Western reader may observe that the New England "small 
town" is a township, largely rural. — Ed.1 



THE NEW YORK EXCHANGES 

[GoVEENOB Charles E. Hughes appointed in December, 1908, a com- 
mittee consisting of business men and bankers and the economist, 
John B. Clark, which was known as *'the Governor's commission on 
speculation in securities and commodities." Its instructions were to 
endeavor to ascertain "what changes, if any, are advisable in the laws 
of the State, bearing upon speculation in securities and commodities, 
or relating to the protection of investors, or wHth regard to the in- 
strumentalities and organizations used in dealings in securities and 
commodities which are the subject of speculation." The committee 
reported June 7, 1909, The following extracts give the greater part 
of the description of the exchanges and of their actual operations. 
The parts omitted pertain very largely to foreign experience, to the 
Committee's opinions as to the morality and harmfulness of the opera- 
tions, and to the recommendations of reformative legislation. The 
latter are summarized at the end of the extract.] 

In New York City there are two exchanges dealing in se- 
curities and seven in commodities. In addition there is a 
security market, without fixed membership or regular officers, 
known as the ' ' Curb. ' ' The exchanges dealing in commodities 
are incorporated, while those dealing in securities are not. . . . 

The New York Stock Exchange. The New York Stock 
Exchange is a voluntary association, limited to 1100 members, 
of whom about 700 are active, some of them residents of other 
cities. Memberships are sold for about $80,000. The Ex- 
change as such does no business, merely providing facilities 
to members and regulating their conduct. The governing 
power is an elected committee of forty members and is plenary 
in scope. The business transacted on the floor is the pur- 
chase and sale of stocks and bonds of corporations and govern- 
ments. Practically all transactions must be completed by de- 
livery and payment on the following day. 

The mechanism of the Exchange, provided by its consti- 

138 



THE NEW YORK EXCHANGES 139 

tution and rules, is the evolution of more than a century. 
An organization of stockbrokers existed here in 1792, acquiring 
more definite form in 1S17. It seems certain that for a long 
period the members were brokers or agents only ; at the present 
time many are principals as well as agents, trading for them- 
selves as well as for their customers. A number of prominent 
capitalists hold jnemberships merely for the purpose of availing 
themselves of the reduced commission charge which the rules 
authorize between members. 

The volume of transactions indicates that the Exchange is 
to-day probably the most important financial institution in 
the world. In the past decade the average annual sales of 
shares have been 196,500,000 at prices involving an annual 
average turnover of nearly $15,500,000,000 ; bond transactions 
averaged about $800,000,000. This enormous business affects 
the financial and credit interests of the country in so large 
a measure that its proper regulation is a matter of transcen- 
dent importance. While radical changes in the mechanism, 
which is now so nicely adjusted that the transactions are car- 
ried on with the minimum of friction, might prove disastrous 
to the whole country, nevertheless measures should be adopted 
to correct existing abuses. 

Patrons of the Exchange. The patrons of the Exchange 
may be divided into the following groups: 

(1) Investors, who personally examine the facts relating 
to the value of securities or act on the advice of reputable 
and experienced financiers, and pay in full for w^hat they buy. 

(2) Manipulators, whose connection with corporations 
issuing or controlling particular securities enables them un- 
der certain circumstances to move the prices up or down, and 
Avho are thus in- some degree protected from dangers encoun- 
tered by other speculators. 

(3) Floor traders, who keenly study the markets and the 
general conditions of business, and acquire early information 
concerning the clianges which affect the values of securities. 
From their familiarity with the technique of dealings on the 



140 THE NEW YORK EXCHANGES 

Exchange, and ability to act in concert with others, and thus 
manipulate values, they are supposed to have special advan- 
tages over other traders. 

(4) Outside operators having capital, experience, and 
knowledge of the general conditions of business. Testimony 
is clear as to the result which, in the long run, attends their 
operations; commissions and interest charges constitute a 
factor always working against them. Since good luck and bad 
luck alternate in time, the gains only stimulate these men to 
larger ventures, and they persist in them till a serious or 
ruinous loss forces them out of the "Street." 

(5) Inexperienced persons, who act on interested advice, 
"tips," advertisements in newspapers, or circulars sent by 
mail, or "take flyers" in absolute ignorance, and with blind 
confidence in their luck. Almost without exception they 
eventually lose. 

Marginal trading. It is unquestionable that only a small 
part of the transactions upon the Exchange is of an invest- 
ment character; a substantial part may be characterized as 
virtually gambling. . . . Two practices are prolific of losses, 
namely, buying active securities on small margins and buying 
unsound securities, paying for them in full. The losses in 
the former case are due to the quick turns in the market, to 
which active stocks are subject ; these exhaust the margins and 
call for more money than the purchasers can supply. The 
losses in the latter case are largely due to misrepresentations 
of interested parties and unscrupulous manipulations. . . . 
"Pyramiding," . . . is the use of paper profits in stock trans- 
actions as a margin for further commitments. . . . The prac- 
tice tends to produce more extreme fluctuations and more 
rapid wiping out of margins. . . . 

Short-selling. Contracts and agreements to sell, and de- 
liver in the future, property which one does not possess at 
the time of the contract, are common in all kinds of business. 
The man who has "sold short" must some day buy in order to 
return the stock which he has borrowed to make the short sale. 



THE NEW YORK EXCHANGES 141 

Short-sellers endeavor to select times when prices seem low 
in order to buy, their action in both cases serving to lessen 
advances and diminish declines of price. In other words, 
short-selling tends to produce steadiness in prices, which is 
an advantage to the community. No other means of restrain- 
ing unwarranted marking up and down of prices has been sug- 
gested to us. . . . 

Manipulation of prices. A subject to which we have de- 
voted much time and thought is that of the manipulation of 
prices by large interests. This falls into two general classes: 

(1) That which is resorted to for the purpose of making a 
market for issues of new securities. 

(2) That which is designed to serve merely speculative 
purposes in the endeavor to make a profit as the result of 
fluctuations which have been planned in advance. 

The first kind of manipulation has certain advantages, 
and when not accompanied by "matched orders" is unobjec- 
tionable per se. It is essential to the organization and carry- 
ing through of important enterprises, such as large corpora- 
tions, that the organizers should be able to raise the money 
necessary to complete them. This can be done only by the 
sale of securities. Large blocks of securities, such as are 
frequently issued by railroad and other companies, cannot 
be sold over the counter or directly to the ultimate investor, 
whose confidence in them can, as a rule, be only gradually 
established. They must therefore, if sold at all, be disposed 
of to some syndicate who will in turn pass them on to middle- 
men or speculators, until, in the course of time, they find their 
way into the boxes of investors. But prudent investors are 
not likely to be induced to buy securities which are not reg- 
ularly quoted on some exchange, and which they cannot sell, 
or on which they cannot borrow money at their pleasure. If 
the securities are really good and bids and offers l)ona fide, 
open to all sellers and buyers, the operation is harmless. It 
is merely a method of bringing new investments into public 
notice. 



142 THE NEW YORK EXCHANGES 

The second kind of manipulation mentioned is undoubtedly 
open to serious criticism. It has for its object either the 
creation of high prices for particular stocks, in order to 
draw in the public as buyers and to unload upon them the hold- 
ings of the operators, or to depress the prices and induce the 
public to sell. There have been instances of gross and un- 
justifiable manipulation. of securities, as in the case of Amer- 
ican Ice stock. . . . 

"Wash sales" and "matched orders." In the foregoing 
discussion we have confined ourselves to bona fide sales. 
. . . Fictitious or so-called "wash sales," . . . are forbid- 
den by the rules of all the regular exchanges, and 
are not enforceable at law. They are less frequent than 
many persons suppose. A transaction must take place upon 
the floor of the Exchange to be reported, and if not reported 
does not serve the purpose of those who engage in it. If 
it takes place on the floor of the Exchange, but is purely a 
pretense, the brokers involved run the risk of detection and 
expulsion, which is to them a sentence of financial death. 
There is, however, another class of transactions called 
' ' matched orders, ' ' which differ materially from those already 
mentioned, in that they are actual and enforceable contracts. 
We refer to that class of transactions, engineered by some 
manipulator, who sends a number of orders simultaneously to 
different brokers, some to buy and some to sell. These brokers, 
without knowing that other brokers have countervailing or- 
ders from the same principal, execute their orders upon the 
floor of the Exchange, and the transactions become binding 
contracts; they cause an appearance of activity in a certain 
security which is unreal. . . . 

Listing requirements. Before securities can be bought and 
sold on the Exchange, they must be examined. The com- 
mittee on stock list is one of the most important parts of the 
organization, since public confidence depends upon the hon- 
esty, impartiality, and thoroughness of its work. While the 



THE NEW YORK EXCHANGES 143 

Exchange does not guarantee the character of any securities, 
or aflRrm that the statemonts filed by the promoters are true, 
it certifies that due diligence and caution have been used 
by experienced men in examining them. Admission to the 
list, therefore, establishes a presumption in favor of the sound- 
ness of the security so admitted. Any securities authorized 
to be bought and sold on the Exchange, which have not been 
subjected to such scrutiny, are said to be in the unlisted de- 
partment, and traders who deal in them do so at their own 
risk. . . . 

Wall Street as a factor. There is a tendency on the part 
of the public to consider Wall Street and the New York Stock 
Exchange as one and the same thing. This is an error arising 
from their location. We have taken pains to ascertain what 
proportion of the business transactions on the Exchange is 
furnished by New York City. The only reliable sources of 
information are the books of the commission houses. An in- 
vestigation was made of the transactions on the Exchange for 
a given day, when the sales were 1,500,000 shares. The re- 
turns showed that on that day 52 per cent, of the total trans- 
actions on the Exchange apparently originated in New York 
City, and 48 per cent, in other localities. 

The Consolidated Stock Exchange. The Consolidated Ex- 
change was organized as a mining stock exchange in 1875, 
altering its name and business in 1886. Although of far less 
importance than the Stock Exchange, it is nevertheless a 
secondary market of no mean proportions ; by far the greater 
part of the trading is in securities listed upon the main ex- 
change, and the prices are based upon the quotations made 
there. The sales average about 45,000,000 shares per annum. 
The fact that its members make a speciality of ''broken lots," 
i.e., transactions in shares less than the 100 unit, is used as 
a ground for the claim that it is a serviceable institution for 
investors of relatively small means. But it is obvious that 
its utility as a provider of capital for enterprises is exceed- 



144 THE NEW YORK EXCHANGES 

ingly limited; and that it affords facilities for the most in- 
jurious form of speculation — ^that which attracts persons of 
small means. 

It also permits dealing in shares not listed in the main 
exchange, and in certain mining shares, generally excluded 
from the other. In these cases it prescribes a form of list- 
ing requirements, but the original listing of securities is very 
rarely availed of. The rules also provide for dealing in grain, 
petroleum, and other products. Wheat is, however, at present 
the only commodity actively dealt in, and this is due solely 
to the permission to trade in smaller lots than the Produce 
Exchange unit of 5,000 bushels. 

There are 1225 members, about 450 active, and the member- 
ships have sold in recent years at from $650 to $2000. In gen- 
eral the methods of conducting business are similar to those 
of the larger exchange, and subject to the same abuses. 

Very strained relations have existed between the two se- 
curity exchanges since the lesser one undertook in 1886 to 
deal in stocks. The tension has been increased by the methods 
by which the Consolidated obtains the quotations of the other, 
through the use of the "tickers" conveying them. It is prob- 
able that without the use of these instruments the business 
of the Consolidated Exchange would be paralyzed; yet the 
right to use them rests solely upon a technical point in a 
judicial decision which enjoins their removal. . . . 

The Curb Market. There is an unorganized stock market 
held in the open air during exchange hours. It occupies a 
section of Broad Street. An enclosure in the center of the 
roadway is made by means of a rope, within which the traders 
are supposed to confine themselves, leaving space on either 
side for the passage of street traffic; but during days of 
active trading the crowd often extends from curb to curb. 

There are about 200 subscribers, of whom probably 150 
appear on the curb each day, and the machinery of the opera- 
tions requires the presence of as many messenger boys and 
clerks. Such obstruction of a public thoroughfare is obviously 



THE NEW YORK EXCHANGES 145 

illegal, but no attempt has been made by the city authori- 
ties to disperse the crowd that habitually assembles there. 

This open-air market, we understand, is dependent for the 
great bulk of its business upon members of the Stock Ex- 
change, approximatel}^ 85 per cent, of the orders executed on 
the curb coming from Stock Exchange houses. The Exchange 
itself keeps the curb market in the street, since it forbids 
its own members engaging in any transaction in any other 
securit}'' exchange in New York. If the curb were put under 
a roof and organized, this trading could not be maintained. 

Its utility. The curb market has existed for upwards of 
tliirty years, but only since the great development of trad- 
ing in securities began, about the year 1897, has it become 
really important. It affords a public market-place where all 
persons can buy and sell securities which are not listed on 
any organized exchange. Such rules and regulations as exist 
are agreed to by common consent, and the expenses of main- 
tenance are paid by voluntary subscription. An agency has 
been established by common consent through which the rules 
and regulations are prescribed. 

This agency consists solely of an individual who, through 
his long association with the curb, is tacitly accepted as 
arbiter. From this source we learn that sales recorded during 
the year 1908 were roughly as follows : 

Bonds $66,000,000 

Stocks, industrials, sliares 4,770,000 

Stocks, mining, sliares 41,825,000 

Official quotations are issued daily by the agency and 
appear in the public press. Corporations desiring their se- 
curities to be thus quoted are required to afford the agency 
certain information, which is, however, superficial and in- 
complete. There is nothing on the curb which corresponds 
to the listing process of the Stock Exchange. The latter, 
while not guaranteeing the soundness of the securities, gives 
a prima facie character to those on the list, since the stock- 
list committee takes some pains to learn the truth. The de- 

10 



146 THE NEW YORK EXCHANGES 

eisions of the agent of the curb are based on insufficient data, 
and since much of the work relates to mining schemes in dis- 
tant States and Territories, and foreign countries, the mere 
fact that a security is quoted on the curb should create no 
presumption in its favor; quotations frequently represent 
''wash sales," thus facilitating swindling enterprises. 

Evils of unorganized status. Bitter complaints have 
reached us of frauds perpetrated upon confiding persons, who 
have been induced to purchase mining shares because they are 
quoted on the curb; these are frequently advertised in news- 
papers and circulars sent through the mails as so quoted. 
Some of these swindles have been traced to their fountain 
heads by the Post-office Department, to which complaint has 
been made ; but usually the swindler, when cornered, has 
settled privately with the individual complainant, and then 
the prosecution has failed for want of testimony. Mean- 
while the same operations may continue in many other places, 
till the swindle becomes too notorious to be profitable. 

Notwithstanding the lack of proper supervision and con- 
trol over the admission of securities to the privilege of quo- 
tation, some of them are meritorious, and in this particu- 
lar the curb performs a useful function. The existence of the 
cited abuses does not, in our judgment, demand the abolition 
of the curb market. Regulation is, however, imperative. To 
require an elaborate organization similar to that existing 
in the Exchanges would result in the formation of another 
curb free from such restraint. 

As has been stated, about 85 per cent, of the business of 
the curb comes through the offices of members of the New York 
Stock Exchange, but a provision of the constitution of that 
exchange prohibits its members from becoming members of, or 
dealing on, any other organized stock exchange in New York. 
Accordingly, operators on the curb market have not attempted 
to form an organization. The attitude of the Stock Exchange 
is therefore largely responsible for the existence of such 
abuses as result from the want of organization of the curb 



THE NEW YOUK EXCHANGES 147 

market. The brokers dealing on the latter do not wish to 
lose their best customers, and hence they submit to these 
irreu'ularities and inconveniences. 

Responsibility of the Exchange. Some of the members of 
the Exchange dealing on the curb have apparently been satis- 
tied with the prevailing conditions, and in their own selfish 
interests have maintained an attitude of indifference toward 
abuses. We are informed that some of the most flagrant cases 
of discreditable enterprises finding dealings on the curb 
were promoted by members of the New York Stock Exchange. 
The present apparent attitude of the Exchange toward the 
curb seems to us clearly inconsistent with its moral obliga- 
tions to the community at large. Its governors have fre- 
quently avowed before the committee a purpose to cooperate 
to the greatest extent for the remedy of any evils found to 
exist in stock speculation. The curb market as at present con- 
stituted affords ample opportunity for the exercise of such 
helpfulness. . . . 

Bucket shops. Bucket shops are ostensibly brokerage of- 
fices, where, however, commodities and securities are neither 
bought nor sold in pursuance of customer's orders, the transac- 
tions being closed by the payment of gains or losses, as deter- 
mined by price quotations. In other words, they are merely 
places for the registration of bets or wagers; their machinery 
is generally controlled by the keepers, who can delay or manip- 
ulate the quotations at will. 

The law of this State, w^hich took effect September 1, 1908, 
makes the keeping of a bucket shop a felony, punishable by fine 
and imprisonment, and in the case of corporations, on second 
offenses by dissolution or expulsion from the State. In 
the case of individuals the penalty for the second offense is the 
same as for the first. These penalties are imposed upon the 
theory that the practice is gambling; but in order to estab- 
lish the fact of gambling it is necessary, under the New York 
law, to show that both parties to the trade intended that it 
should be settled by the payment of differences, and not by 



148 THE NEW YORK EXCHANGES 

delivery of property. Under the law of Massachusetts it is 
necessary to show only that the bucket-shop keeper so intended. 
The Massachusetts law provides heavier penalties for the 
second offense than for the first, and makes it a second offense 
if a bucket shop is kept open after the first conviction. . . . 
There has been a sensible diminution in the number of bucket 
shops in New York since the act of 1908 took effect, but there 
is still much room for improvement. 

Continuous quotations of prices from an exchange are in- 
dispensable to a bucket shop, and when such quotations are 
cut off this gambling ends; therefore every means should be 
employed to cut them off. . . . 

The major commodity exchanges. Of the seven commodity 
exchanges of New York, three dealing with produce, cotton, 
and coffee are classed as of major importance; two organized 
by dealers in fruit and hay, are classed as minor; and two 
others, the Mercantile (concerned with dairy and poultry prod- 
ucts) and the Metal (concerned with mining products) are 
somewhat difficult of classification, as will appear hereafter. 
The business transacted on the three major exchanges is 
mainly speculative, consisting of purchases and sales for future 
delivery either by those who wish to eliminate risks or by 
those who seek to profit by fluctuations in the value of prod- 
ucts. "Cash" or "spot" transactions are insignificant in 
volume. 

The objects, as set forth in the charters, are to provide 
places for trading, establish equitable trade principles and 
usages, obtain and disseminate useful information, adjust con- 
troversies, and fix by-laws and rules for these purposes. 

Trading in differences of price and "wash sales" are 
strictly prohibited under penalty of expulsion. All con- 
tracts of sale call for delivery, and unless balanced and can- 
celled by equivalent contracts of purchase, must be finally 
settled by a delivery of the merchandise against cash payment 
of its value as specified in the terms of the contract; but 
the actual delivery may be waived by the consent of both 



TIIK NEW YOUK EXCHANGES 149 

parties. Possession is For the most part transferred from 
the seller to the purchaser by warehouse receipts entitling the 
holder to the ownership of the goods described. 

Dealing in "futures." The selling of agricultural prod- 
ucts for future delivery has been the subject of much con- 
troversy in recent years, A measure to prohibit such selling, 
known as the Hatch Anti-Option Bill, was debated at great 
length in Congress during the years 1892, 1893 and 1894. 
Although it passed both House and Senate in different forms, 
it was finally abandoned by common consent. Similar 
legislation in Germany has proved injurious; and when at- 
tempted by our States it has eith.er resulted detrimentally or 
been inoperative. The subject was exhaustively considered 
by the Industrial Commission of Congress which in 1901 made 
an elaborate report (volume VI), showing that selling for 
future delivery, based upon a forecast of future conditions 
of supply and demand, is an indispensable part of the world's 
commercial machinery, by which prices are, as far as pos- 
sible, equalized throughout the year to the advantage of both 
producer and consumer. The subject is also treated with 
clearness and impartiality in the Cyclopedia of American 
Agriculture, in an article on "Speculation and Farm 
Prices"; where it is shown that since the yearly supply of 
wheat, for example, matures within a comparatively short 
period of time somebody must handle and store the great 
Ijulk of it during the interval between production and con- 
sumption. Otherwise the price will be unduly depressed at 
the end of one harvest and correspondingly advanced before 
the beginning of another. 

Buying for future delivery causes advances in prices; sell- 
ing short tends to restrain inordinate advances. In each 
case there must be a buyer and a seller and the interaction 
of their trading steadies prices. Speculation thus brings 
into the market a distinct class of people possessing capital 
and s{)eeial training who assume the risks of holding and 
distributing the proceeds of the crops from one season to 



150 THE NEW YORK EXCHANGES 

another with the minimum of cost to producer and con- 
sumer. 

Hedging. A considerable part of the business done by 
these exchanges consists of "hedging." This term is applied 
to the act of a miller, for example, who is under contract 
to supply a given quantity of flour monthly throughout the 
year. In order to insure himself against loss he makes a 
contract with anybody whom he considers financially re- 
sponsible to supply him wheat at times and in the quantities 
needed. He "hedges" against a possible scarcity and eon- 
sequent rise in the price of wheat. If the miller were re- 
stricted in his purchases to. persons in the actual possession 
of wheat at the time of making the contract he would be 
exposed to monopoly prices. If the wheat producer were 
limited in his possibilities of sale to consumers only, he would 
be subjected to the depressing effects of a glut in the market 
in June and September, at times of harvest. 

To the trader, manufacturer, or exporter, the act of trans- 
ferring the risk of price fluctuations to other persons who 
are willing to assume it, has the effect of an insurance. It 
enables him to use all of his time and capital in management 
of his own business instead of devoting some part of them 
to contingencies arising from unforeseen crop conditions. 

Alternative contracts, margins, settlements. In order to 
eliminate the risk of a shortage of specific grades of the mer- 
chandise thus traded in, contracts generally permit the delivery 
of alternative grades, within certain limits, at differential 
prices; and if the grade to be delivered be not suitable for 
the ultimate needs of the purchaser, it can under ordinary cir- 
cumstances be exchanged for the grade needed, by the pay- 
ment of the differential. It is true that in this exchange of 
grades there is sometimes a loss or a profit, owing to some 
unexpected diminution or excess of supply of the particular 
grade wanted, due to the weather or other natural causes. 

Deposits of cash margins may be required mutually by 
members at the time of making contracts, and subsequent 



THE NEW YOKK EXCHANGES 151 

additional ones if market fluctuations justify. Dealings for 
outsiders are usually upon a 10 per cent, margin; obviously 
if this margin were increased generally, say to 20 per cent., 
a considerable part of the criticism due to losses in specula- 
tion, particularly as to the Cotton Exchange, would be elim- 
inated. 

The major part of the transactions are adjusted by clear- 
ing systems, the method most prevalent being "ring settle- 
ments," by which groups of members having buying and 
selling contracts for identical quantities offset them against 
each other, canceling them upon the payment of the differences 
in prices. 

The Produce Exchange. The New York Produce Exchange 
was chartered by the Legislature in 1862, under the style of 
the "New York Commercial Association." The charter has 
been amended several times; in 1907 dealing in securities, 
as well as in produce, was authorized. There are over 2000 
members, but a large number are inactive. Some members 
are also connected with the Stock and Cotton Exchanges. The 
business includes dealing in all grains, cottonseed oil, and 
a dozen or more other products; wheat is, however, the chief 
subject of trading, and part thereof consists of hedging by 
and for millers, exporters, and importers, both here and 
abroad. The quantity of wheat received in New York in the 
five years 1904-1908 averaged 21,000,000 bushels annually. 
No record of "cash" sales is kept. The reported sales of 
"futures" show in five years an annual average of 480,000,000 
bushels, the year 1907 showing 610,000,000. Although some 
of these sales were virtually bets on price differences, all of 
them were contracts enforceable at law. . . . 

The Cotton Exchange. The New York Cotton Exchange 
was incorporated by a special charter in 1871. Its member- 
ship is limited to 450. It is now the most important cotton 
market in the world, as it provides the means i'or financing 
about 80 per cent, of tlie crop of the United States and is 
the intermediary for facilitating its distribution. In fact, it 



152 THE NEW YORK EXCHANGES 

is the world's clearing house for the staple. Traders and 
manufacturers in Japan, India, Egypt, Great Britain, Ger- 
many, France, and Spain, as well as the United States, buy 
and sell here daily and the business is still increasing. 

Cotton is the basis of the largest textile industry in the 
world. The business is conducted on a gigantic scale in 
many countries, by means of vast capital, complicated ma- 
chinery, and varied processes involving considerable periods of 
time between the raw material and the finished product. 
Selling for future delivery is necessary to the harmonious and 
uninterrupted movement of the staple from producer to con- 
sumer. Nearly all the trading, beginning with that of the 
planter, involves short selling. The planter sells to the dealer, 
the dealer to the spinner, the spinner to the weaver, the weaver 
to the cloth merchant, before the cotton of any crop year is 
picked. Dealers who take the risk of price fluctuations insure 
all the other members of this trading chain against losses 
arising therefrom and spare them the necessity of themselves 
being speculators in cotton. The risks connected with rais- 
ing and marketing cotton must be borne by some one, and 
this is now done chiefly by a class who can give their un- 
divided attention to it. 

Grading cotton. The grading of cotton is the vital fea- 
ture of the trade. When no grade is specified in the con- 
tract, it is construed to be middling. There are now eighteen 
grades ranging from middling stained up to fair. This classi- 
fication differs somewhat from that of other markets, and 
last January the Department of Agriculture at Washington 
took up the subject of standardizing the various grades for 
all American markets. The New York Cotton Exchange par- 
ticipated in this work ; a standard was thus adopted, the types 
of which were supplied by its classification committee. It 
varies but little from the one previously in use here. The 
samples chosen to represent the several types are now sealed, 
in possession of the Department of Agriculture, awaiting the 
action of Congress. 



THE NEW YORK EXCHANGES 153 

The cotton plant is niueli exposed to vicissitudes of the 
weather. A single storm may change the grade of the crop in 
large sections of the country. It becomes necessary therefore 
to provide some protection for traders who have made con- 
tracts to deliver a particular grade which has become scarce 
by an accident which could not be foreseen. For this pur- 
pose alternative deliveries are allowed by the payment of cor- 
responding price differentials, fixed by a committee of the 
Exchange twice annually, in the months of September and 
November. 

Settlements, sales, speculation. Settlements of trades may 
be made individually, or by groups of members, or through 
a clearing system, the agency of which is a designated bank 
near the Exchange. No record is kept of the transactions, 
but it is probable that for a series of years the sales have 
averaged fully 50,000.000 bales annually. There have been 
in the past instances of excessive and unreasonable specula- 
tion upon the Cotton Exchange, notably the Sully speculation 
of 1904. We believe that there is also a great deal of specu- 
lation of the gambling type. . . . 

The Coffee Exchange. The Coffee Exchange was incor- 
porated by special charter in 1885. It has 320 members, about 
80 per cent, active. It was established in order to supply a 
daily market where coffee could be bought and sold and to fix 
(juotations therefor, in distinction from the former method of 
alternate glut and scarcity, with wide variations in price — in 
short, to create stability and certainty in trading in an im- 
portant article of commerce. This it has accomplished; and 
it has made New York the most important primary coffee 
market in the United States. But there has been recently 
introduced a non-commercial factor known as "valorization," 
a governmental scheme of Brazil, by which the public treasury 
has assumed to purchase and hold a certain percentage of the 
coffee grown there, in order to prevent a decline of the price. 
This has created abnormal conditions in the coffee trade. 

All transactions must be reported by the seller to the 



154 THE NEW YORK EXCHANGES 

superintendent of the Exchange, with an exact statement of 
the time and terms of delivery. The record shows that the 
average annual sales in the past five years have been in excess 
of 16,000,000 bags of 250 pounds each. 

Contracts may be transferred or offset by voluntary clear- 
ings by groups of members. There is no general clearing 
system. There is a commendable rule providing that, in case 
of a "corner," the officials may fix a settlement price for 
contracts to avoid disastrous failures. 

The other exchanges. Of the exchanges which we have 
classed as minor, those dealing with fruit and hay appear 
to be in nowise concerned with speculation. No sales what- 
ever are conducted on them, all transactions being consum- 
mated either in the places of business of the members or at 
public auction to the highest bidder. No quotations are made 
or published. 

In the case of the other two commodity exchanges, the 
Mercantile and the Metal, new problems arise. Although quo- 
tations of the products appertaining to these exchanges are 
printed daily in the public press, they are not a record of 
actual transactions amongst members, either for immediate or 
future delivery. 

It is true that on the Mercantile Exchange there are 
some desultory operations in so-called future contracts in 
butter and eggs, the character of which is, however, revealed 
by the fact that neither delivery by the seller nor acceptance 
by the buyer is obligatory; the contract may be voided by 
either party by payment of a maximum penalty of 5 per 
cent. There are nominal "calls" but trading is confessedly 
rare. The published quotations are made by a committee, the 
membership of which is changed periodically. That com- 
mittee is actually a close corporation of the buyers of butter 
and eggs, and the prices really represent their views as to 
the rates at which the trade generally should be ready to buy 
from the farmers and country dealers. 

Similar, but equally deceptive, is the method of making 



THE NEW YORK EXCHANGES 155 

quotations on the Metal Exchange. In spite of the apparent 
activity of dealings in this organization in published market 
leports, there are no actual sales on the floor of the Metal 
Exchange, and we are assured that there have been none for 
several years. Prices are, however, manipulated up and down 
by a quotation committee of three, chosen annually, who rep- 
resent the great metal selling agencies as their interest may 
appear, affording facilities for fixing prices on large contracts, 
mainly for the profit of a small clique, embracing, however, 
some of the largest interests in the metal trade. 

These practices result in deceiving buyers and sellers. The 
making and publishing of (quotations for commodities or se- 
curities by groups of men calling themselves an exchange, 
or by any other similar title, whether incorporated or not, 
should be prohibited by law, where such quotations do not 
fairly and truthfully represent any bo7ia fide transactions on 
such exchanges. Under present conditions, we are of the 
opinion that the Mercantile and Metal Exchanges do actual 
harm to producers and consumers, and that their charters 
should be repealed. 

Some conclusions.^ Commodities are not held for pcv 
manent investment, but are bought and sold primarily for 
the purpose of commercial distribution ; on the other hand, 
securities are primarily held for investment; but both are 
subjects of speculation. Speculation consists in forecasting 
changes of value and buying or selling in order to take ad- 
vantage of them ; it may be wholly legitimate, pure gambling, 
or something partaking of the (j[ualities of both. In some 
form it is a necessary incident of productive operations. 
AVhen carried on in connection with either commodities or 
securities it tends to steady their prices. Where speculation 
is free, fluctuations in prices, otherwise violent and disastrous, 
ordinarily become gradual and comparatively harmless. 
Moreover, so far as commodities are concerned, in the absence 

J [The following general views of tbo Coiumissiou are given near the 
bogiiiuing of llic repoil, p. 3. J 



156 THE NEW YORK EXCHANGES. 

of speculation, merchants and manufacturers would them- 
selves be forced to carry the risks involved in changes of 
prices and to bear them in the intensified condition resulting 
from sudden and violent fluctuations in value. Risks of this 
kind which merchants and manufacturers still have to assume 
are reduced in amount, because of the speculation prevailing ; 
and many of these milder risks they are enabled, by "hedg- 
ing," to transfer to others. For the merchant or manufac- 
turer the speculator performs a service which has the effect of 
insurance. 

In law, speculation becomes gambling, when the trading 
which it involves does not lead, and is not intended to lead, 
to the actual passing from hand to hand of the property that 
is dealt in. . . . 

The problem to be solved, The problem wherever specu- 
lation is strongly rooted is to eliminate that which is waste- 
ful and morally destructive, while retaining and allowing free 
play to that which is beneficial. The difficulty in the solu- 
tion of the problem lies in the practical impossibility of 
distinguishing what is virtually gambling from legitimate 
speculation. The most fruitful policy will be found in meas- 
ures which will lessen speculation by persons not qualified 
to engage in it. In carrying out such a policy exchanges can 
accomplish more than legislatures. 

[The conclusions of the committee were "directed to the removal of 
various evils," and "to the reduction of the volume of speculation of 
the gambling type." The committee repeatedly emphasizes the diffi- 
culty of distinguishing by law between proper and improper practices. 
It is impressed with the results of the German law of 1896 which 
failed to reach the abuses and which was modified and largely repealed 
by the law of 1908. The committee repeatedly declares that the 
exchange, with plenary power over members and their operations, could 
provide correctives and should do so. While it makes a few specific 
recommendations for legislation, the conclusions are in large part 
negative and conservative, as compared with popular views on the 
subject.] 



differencp:s in efficiency of weavers 

[The TarifT Board, in the study of the cost of producing woolen 
cloths, observed in the weavers widely "varying degrees of efficiency 
in the same class of goods (exclusive of learners)." A letter was 
sent to manufacturers, asking: "What is wrong in the mental or 
pliysical makeup or application of the inellicient weavers and on the 
other hand what are the qualifications of good weavers?" 

The replies, a portion of which are here given, may be taken as 
throwing light on the differences in the efficiency of workers in gen- 
oral, whether in the same trade, or in different trades. (Report of 
Tariff Board on Schedule K, transmitted to Congress, Dec. 20, 1011. 
Printed for the use of the Committee on Finance. Selections from pp. 
1065-1074.)] 

Establishment No. 1. The loom is seldom out of order and 
is generally fixed within a very short time, an hour or two at 
the most. The warp and filling having been made in large lots 
in our worsted mill will run exactly as well in one loom as in 
another. The weaver varies. Some weavers have that pe- 
culiar knack of watching their warp and putting their bobbins 
in the shuttles carefully, and always alert to notice anything 
that is going wrong, and are onto the many tricks of the trade 
that make their work run easily. Others are careless, cannot 
do any of the many little things that make their work run 
easily, and hence have to do a great deal more stopping than 
a good weaver. At one time we had a young woman who 
did more and better work than any of the other men and 
women weavers in the mill. Quite often we do not have the 
proper loom to weave with the greatest efficiency certain cloths, 
but it would not pay us to change, as possibly the next orders 
might require that very loom to weave efficiently on. 

Establisliment No. 2. Most of our weavers are either per- 
sons too old to learn any new trade and have lost all ambition 

157 



158 DIFFERENCES IN EFFICIENCY 

and are perfectly content to jog along from day to day 
with not much worry for the future, or floaters, who drift 
from one mill to another, who will get off an exceptional 
week's production, but pay day will see them on the road 
once more, bound for some other to^vn. Spinners are even 
more difficult to procure, and in brief labor conditions have 
reached a stage where we are forced to take any one who 
applies in order to keep our machinery running. 

Establishment No. 3. It is more difficult to weed out the 
poor weavers in a mill located in a small community, as 
there is no waiting list to select from to fill their places, and 
vacancies are usually filled with learners, whereas in a larger 
place, having a number of weaving plants, it is practicable 
to insist on a maximum production, owing to the supply of 
experienced weavers near at hand to draw upon. 

A good weaver — that is, one who can produce the maximum 
amount of good cloth — must be quick, with nimble fingers, 
good eyesight, clean and methodical, and anxious to earn and 
receive a good wage, and willing to pay the price by being 
on the job all the time. The poor weaver is sure to lack 
some of these qualifications. 

Establishment No. 4. The weavers (and in fact all our 
employees) are not nearly as efficient and as steady as they 
were some years ago, and we do not get as good work as we 
used to. The new labor that we get is largely Polish, as com- 
pared with English, German, and Irish a few years since. 
The Polish are not nearly as good a class of help as the 
former, and they are not as well educated. Then, we have 
more changes of employees than we used to ; consequently, we 
are continually breaking in new help, which tends greatly to 
reduce the efficiency. 

Establishment No. 6. Under normal trade conditions there 
is a scarcity of good weavers, and help have to be taken on 
who are ignorant of our re(]uirements, and thus more or less 
incompetent. Recognition of this fact has stimulated the 
adoption of automatic devices on looms for the prevention of 



DIFFERENCES IN EFFICIENCY 159 

bad work. Many persons follovvinj,^ the weaver's craft have 
misseil their calling; nature intended them for other occupa- 
tions; the deft hand and alert eye, so essential to successful 
weaving, are plainly lacking. They mean well, but their 
work gets ahead of them, and they spend their days in futile 
eli'orts to catch up ; before one fault is corrected another ap- 
pears, and it is from such operatives that most of the im- 
perfect cloth comes. 

AVeavers in dress-goods mills, particularly where there are 
automatic looms, run more looms than in men's-wear mills, and 
when the latter are busy they draw heavily upon dress-goods 
organizations for their supply of weavers. In turn the dress- 
goods mills draw on the cotton mills for reciiiits, and it takes 
several months for a cotton-weaver to become a good worsted 
weaver. Meanwhile efficiency is not the highest. 

The class of weavers is numerous that prefers easy, com- 
fortable work with medium wages rather than work of higher 
grade and better pay. This lack of exertion and absence of 
ambition on their part tends to keep down efficiency. 

The weavers do not all possess equal skill or physical 
power. In our employ are many weavers forty-five years and 
older, who are still producing good cloth, but w^hose product is 
being impaired by advancing years. Some of our most compe- 
tent weavers are women twenty to thirty years of age, who 
right in the stage of their greatest efficiency relinquish their 
occupation and get married. In Europe weavers are more 
contented with their vocation and plan to remain in it all 
their lives. In numberless instances entire families for genera- 
tions past have all been weavers, and such operatives acquire a 
measure of dexterity and skill which is not so fully met with 
in American mills. Neither is it the rule for young women 
to give up their mill occupation upon marriage ; most of them 
continue their mill employment for several years after. 

Establishment No. 9. As to the qualities of good weavers, 
it is hard to describe them. The essential qualities are 
alertness and dexterity, and as the work is not heavy, requir- 



160 DIFFERENCES IN EFFICIENCY 

ing no great physical strength, women are often as good 
weavers as men, and sometimes better. Above all things, how- 
ever, a weaver must have years of training in weaving all 
the different kinds of fabrics before he or she can really 
be called a good weaver. Under the hitherto prevalent violent 
fluctuations in the industry such life-long training has 'only 
been possible in very exceptional cases and in such places 
where local conditions have been more like those in Europe. 
This has again been brought to our special notice during the 
past summer. When the mill was running part time, many 
of our best and most energetic and ambitious workers, whom 
we had with great trouble educated for our special kind of 
work and who were dissatisfied at not making full wages, 
sought other industries. Now, when we are running full 
time again, we find we have only the poorer help and are al- 
most in as bad a position as when we first started. It is 
impossible to repeat too often the great advantage possessed 
by the older European centers of the woolen and worsted 
industry. The operatives in those towns, even if they earn 
less than they might do elsewhere, will not break up their as- 
sociations and move away as they do here. They are attached 
to their work and to their homes. Here the operatives have 
scarcely time to become domiciled before business is subjected 
to a violent setback and they are forced to seek work in other 
towns. The disadvantages of all this for mill owners are two- 
fold: First, we thereby lose our best people, and secondly, 
upon the resumption of activity we have to break in new 
people again. 

Establishment No. 10. Weaving is much more difficult 
than the average person who comes from the farms and rural 
districts, not only in this country but from foreign countries, 
anticipates; and the average that makes good is one in 
twelve. 

As you will see by the names of all our employees they are 
very largely made up of foreigners, and to this we attribute 
the constant coming and going, as they come to this country 



DIFFERENCES IN EFFICIENCY 161 

from stories they have been tokl that money is easy to make 
in America. There also arc a great many positions open for 
them in which as much money can be earned without the same 
amount of brains or skill being necessary. 

Establishment No. 15. In our opinion, what will make a 
good weaver will make a good workman in almost any line, 
especially mechanical. The good weaver has a "mechanical' 
sense," which is lacking in a poor one. No doubt this is 
one reason why men are usually more efficient in weaving 
than women, who usually lack the "instinct for machinery," 
if it may be so called. A proof of this opinion is found in 
the fact that weavers as a class are less efficient now than 
they were ten years ago. This is certainly true in our plant 
and, we believe, in the industry generally. The reason for 
this is that the best weavers go into some other line of in- 
dustry where the pay is better. Many of our "star^' of 
past years went into the wire-fence industry. Many more, 
during the past three or four years, have gone into the auto- 
mobile industry, of which the center for the country is only 
fifty miles from us. Some of our weavers who have gone into 
this business have made good and are now drawing several 
times as much as they could ever have hoped for in weav- 
ing. . . . 

It is invariably true that the weavers who turn off the 
most work in a given time also turn off the best work. The 
extremely slow and careful weavers are the ones who turn out 
the poor goods. Of course, in this statement we are referring 
only to the honest workman, not to those who have no pride in 
their work and run it out as fast as they can, regardless of 
results. 

Establishment No. 20. There are first-class weavers, good 
weavers, fairly good weavers, and "also rans." Distinctly 
poor weavers, of course, we do not keep. It is just about as 
difficult to account for these degrees as it is to explain the 
difference in artists, machinists, carpenters, bricklayers, or 
baseball pitchers. Natural manual skill, vitality, a quick eye, 



162 DIFFERENCES IN EFFICIENCY 

diligence, alertness, ambition, system, temperament — are all 
governing factors. 

The good weaver never seems to be doing anything ; the poor 
weaver always appears to be hard at work. The good weaver 
is quietly on the alert for things to happen; the poor weaver 
is always fussing around to catch up after they happen; con- 
sequently the good weaver not only produces more work but 
better work than the poor one. 



CONSERVATION OF HUMAN LIFE 

[The Report on National Vitality, Its Wastes and Conservation, 
prepared for the National Conservation Commission in 1008, by Irving 
Fisiier, professor in Yale University, contained a brief summary of the 
arguments and material of the report. The following extract contains 
the greater portion of the summary of parts I, II and IV. The wliolo 
report was publislied as Bulletin 30 of the Committee of One Hundred 
on National Health.] 

Pakt I. — Length of life versus mortality. 

CHAPTER I — THE LENGTH OF LIFE 

§ 1. In 'different places. — President Roosevelt has pointed 
out that the problem of conserving our natural resources is 
part of another and greater problem — that of national effi- 
ciency. This depends not only on physical environment, but 
on social environment, and most of all on human vitality. 
Modern hygiene is the reaction against the old fatalistic creed 
that deaths inevitably occur at a constant rate. The new- 
motto is that of Pasteur: ''It is within the power of man 
to rid himself of every parasitic disease." 

It was once believed that human mortality followed an ''in- 
exorable law." Facts, however, show that mortality varies in 
different places and is decreasing as hygiene comes into use. 
The length of life in Sweden and Denmark is over fifty years ; 
in the United States and England about forty-five; in India 
less than twenty-five. 

§ 2. At different times. — In Europe, according to one au- 
thority, the length of life has increased in three hundred and 
fifty years from less than twenty to about forty years; in 
England, in less than half a century, it has increased about 
five years; in Prussia, in the last quarter of a century, over 

163 



164 CONSERVATION OF HUMAN LIFE 

six years; in America it has also increased, although good 
life tables are lacking excepting for insurance experience. 
The tables for Massachusetts for 1893-1897 show an average 
duration of life in that State of forty-five years, as compared 
with forty in 1855, and thirty-five, an estimate of 1789, based, 
however, on doubtful returns. 

CHAPTER II THE MORTALITY RATE, 

§ 1. Relation of longevity to mortality. — As duration of life 
increases the death rate decreases. A death rate is the ratio 
of the number of deaths in a year to the population. Under 
normal conditions where the population is "stationary" — 
that is, neither increasing nor decreasing nor subject to immi- 
gration or emigration — the death rate and the duration of 
life are ' ' reciprocals. ' ' In such a population, if the death rate 
is 20 per 1,000, the duration of life will be 1,000-^-20 = 50 
years. 

This relation, however, is disturbed in most countries to- 
day, and especially in America, by immigration and emigra- 
tion and by the birth rate being in excess of the death rate. 
Nevertheless, death rates, if compared under similar condi- 
tions, furnish a fairly good index of vitality. They vary in 
different places and at different times. 

§ 2. Mortality in various regions. — In the registration area 
of the United States the death rate is 16.5 per 1,000 ; in France 
it is 20 ; in India 42. In different States of the United States 
it varies from 14 in Michigan to 18 in New York. 

§ 3. TJrdan and rural mortality. — The death rate is higher 
in the city than in the country, and the larger the city the 
higher the death rate. In European countries among the 
cities with the highest death rate are Dublin (40) and Mos- 
cow (37) ; among the lowest, Frankfort on the Main (16) and 
The Hague (16). 

§ 4. Race and condition. — The colored death rate greatly 
exceeds tlie white. The death rate among the poor exceeds 



CONSERVATION OF IITJ.MAN LIFE 105 

that among the rich, beiuy in Glasgow and l*aris over twice 
as great. 

§ 5. Mortality historicallij. — Death rates have been decreas- 
ing during several centuries. In London, where now the death 
rate is only 15, it was during the seventeenth and eighteenth 
centuries 40 to 50, and during 1680 to 1728, a period of 
pests, it rose as high as 80. Similar reduction has also been 
experienced in this country. In Ilabana the death rate after 
the American occupation fell from over 50 to about 20. 

§ 6. Adult and infant mortality. — The greatest reduction 
has been effected among children, although the death rate is 
still undoubtedly high. Statistics show that during the last 
thirty years the death rate up to 50 years of age has de- 
creased, but that beyond 50 it has remained almost stationary. 

§ 7. Particular diseases. — The mortality from certain spe- 
cial diseases has greatly decreased. The tuberculosis death 
rate is now in England only one-third of what it was seventy 
years ago. The death rate from pneumonia now equals that 
of tuberculosis. Typhoid fever is decreasing. In Munich 
during 1856 the mortality was 291 per 100,000 of population. 
The city at that time contained many cesspools. After these 
were filled up the typhoid rate fell to 10 per 100,000 in 1887, 
making a reduction of 97 per cent. In Lawrence, Mass., after 
the public water was filtered in 1893 the typhoid-fever rate 
fell from 105 to 22. Doctor Kober has shown that death rates 
from typhoid fever are greatest in cities in which the rivers' 
waters are polluted, the average for these cities being 62, as 
compared with 18 for cities using unpolluted Avater of im- 
pounded and conserved streams. Doctor Rosenau concludes 
that any community having clean water and uninfected milk 
supply may be free from typhoid. 

Smallpox has greatly decreased since vaccination has been 
employed. In Prussia the death rate per 100,000 from small- 
pox between 1846 and 1870 was 24. In 1874 vaccination was 
made compulsory, and the death rate for the years 1875-76 fell 
to 1.5. Similar figures can be given for other places. The 



166 CONSERVATION OF HUMAN LIFE 

present outcry against vaccination is based on misinformation 
and on the general reasoning that it is unnatural to introduce a 
poison into the blood. Statistics show clearly that vaccination 
decreases smallpox and lengthens life. Even though it were 
shown that the virus is injurious, it would be the lesser of two 
evils. 

Yellow fever in Philadelphia in 1793 caused the death of 
one-tenth of the city's population within six and one-half 
weeks. In 1900 it was found that a species of mosquito trans- 
mits this disease. The result of this applied knowledge is 
that the disease has practically disappeared in America. 



Part II. — Breadth of life versus invalidity. 

CHAPTER III — PREVALENCE OF SERIOUS ILLNESS. 

§ 1. Loss of time. — Life is shortened by death and nar- 
rowed by invalidity. The ideal life, with respect to health, 
would be free from illness and disability of every kind. To 
approximate such an ideal is the aim of hygiene. It is usually 
true that the healthier a life the longer it will last. Hum- 
boldt maintained that he had lived four working lives by re- 
taining a working power double the average for double the 
average number of years. According to Farr, for every death 
there is an average severe sickness of two years, or for each 
death per year there are two persons sick throughout the year. 
This would mean in the United States that, as there are about 
1,500,000 annual deaths, there will always be about 3,000,000 
persons on the sick list, which is equivalent to about thirteen 
days per capita. 

§ 2. Particidar diseases. — There are constantly ill in the 
United States of tuberculosis about 500,000 persons, of 
whom about one-half are totally incapacitated, while the re- 
mainder are half incapacitated. The causes of various dis- 
eases are closely interwoven. Professor Sedgwick tells us that 
"Hazen's theorem" shows for every death from typhoid fever 



CONSERVATION OF HUMAN LIFE 167 

avoided by the purification of a polluted water supply two or 
three deaths are avoided from other causes. Hook-worm dis- 
ease in the South is a chief cause of incapacitation, especially 
among the poor whites. For this reason the hook worm has 
been nicknamed the "germ of laziness." It is believed that a 
sufferer from hook-worm disease is incapacitated from one- 
fourth to one-half of the time. 

. . . The social diseases, which certainly are preventable, are 
one of the gravest of the menaces to national efficiency. 

American railways in 1907-8 killed nearly 11,800 and in- 
jured nearly 111,000 persons. The deaths and disablements 
from accidents in industry, although less carefully recorded, 
also represent a great and needless impairment of efficiency. 

CHAPTER TV — PREVALENCE OF MINOR AILMENTS. 

§ 1. Importance of minor ailments. — Minor ailments are 
far more common than most persons realize. They are chiefly 
functional disorders, such as of the stomach, heart, nerves, 
liver, kidney, etc. These deserve more attention than they 
have hitherto received, because they are the gateway to more 
serious troubles. For instance, those who neglect colds, or 
what seem to be colds, will be far more likely to become victims 
of tuberculosis or pneumonia. No statistics of the prevalence 
of minor ailments exist. Physicians, whose experience gives 
them good opportunity to judge, place the time lost annually 
for each person from minor ailments at three or more days a 
year. 

§ 2. Preventahility of minor ailments. — Practically all 
minor ailments can be avoided by proper hygiene, public and 
private. Neurasthenia, so common in America, is one of the 
most serious and insidious introductions to grave disorders, 
and is usually due to needless worry or failure to have ade- 
(luate recreation. 



168 CONSERVATION OF HUMAN LIFE 

CHAPTER V — PREVALENCE OF UNDUE PATIGUE. 

§ 1. Strength, endurance, and fatigue. — Strength is meas- 
ured by the force a muscle can exert once; endurance by the 
number of times it can repeat an exertion requiring a specified 
part of the strength. Fatigue is a chemical effect, due to 
"fatigue poisons." Far greater differences exist between 
different persons in respect to endurance than in respect to 
strength. Some "well" people become tired by a short walk, 
while others withstand hours of walking, running, or climbing. 

§ 2. Alcohol and fatigue. — The "Committee of Fifty" 
found that alcohol gives no persistent increase of muscular 
power. It is well understood by all who control large bodies 
of men engaged in physical labor that alcohol and effective 
work are incompatible. Rivers, writing on the influence of 
alcohol on fatigue, found that when workmen were provided 
with a moderate amount of wine it resulted in a considerable 
diminution of their capacity for work. 

§ 3. Tohacco and fatigue. — Athletes recognize that smoking 
interferes with one's "wind" or "staying power." " In- 
haling" tobacco smoke brings carbon-monoxide directly into 
the blood stream. It is found that smoking increases blood 
pressure, which fact possibly partly explains the reduction in 
endurance. 

§ 4. Diet and fatigue. — When excessive amounts of the 
protein element in food (exemplified in white of egg or the 
lean part of meat) are taken, they putrefy in the large in- 
testine, producing "auto-intoxication." For this and other 
reasons, there is a present tendency among physiologists to 
advise a reduction in the use of such foods from the amounts 
customary in many countries, and especially in the United 
States. Auto-intoxication induces fatigue. The comparison 
of those using high protein and of those using low protein 
shows in general, although with some exceptions, that the for- 
mer have less endurance than the latter. Whether the latter 
are vegetarian or not does not seem to matter. Experiments 



CONSERVATION OF HUMAN LIFE 1G9 

show that thorough mastication leads instinctively to a reduc- 
tion in protein. 

§ 5. Excrlion and fatigue. — Oxygen, whether taken natur- 
ally or artificially, increases the capacity for exertion. A 
judicious amount of exercise is perhaps the chief factor in 
producing the highest state of muscular efficiency. Physical 
training, comprising exercise and other hygienic measures, 
will probably make the capacity to withstand great exertion 
three or four times that possessed by most persons. 

§ 6. The working day. — The present working day, from a 
physiological standpoint, is too long, and keeps the majority 
of men and women in a continual state of overfatigue. It 
starts a vicious circle, leading to the craving of means for 
deadening fatigue, thus inducing drunkenness and other ex- 
cesses. Experiments in reducing the working day show a 
great improvement in the physical efficiency of laborers, and 
in many cases results in even increasing their output suffi- 
c'ieutl}^ to compensate the employer for the shorter day. 
Several examples of such a result exist, but the real justifica- 
tion for a shorter work day is found in the interest of the 
race, not the employer. One company, which keeps its 
factory going night and day, found, on changing from two 
shifts of twelve hours each to three shifts of eight hours each, 
that the efficiency of the men gradually increased, and the 
days lost per man by illness fell from seven and one-half to 
live and one-half per year. Public safety requires, in order 
to avoid railway collisions and other accidents, the prevention 
of long hours, lack of sleep, and undue fatigue in workmen. 

§ 7. The importance of preventing undue fatigue. — The 
economic waste from undue fatigue is probably much greater 
than the waste from serious illness. This is because the 
number of fatigued persons is great enough to more than out- 
weigh the fact that the incapacitation from fatigue is rela- 
tively small. Moreover, the relatively slight impairment of 
efficiency due to overfatigue leads to greater impairment from 
serious illness. A typical succession of events is, first, fatigue, 



170 CONSERVATION OF HUMAN LIFE 

then "colds," then tuberculosis, then death. The prevention 
of undue fatigue means the arrest at the start of this ac- 
celerating chain of calamities. 

[Part III, comprising about two-fifths of the Report, deals with the 
conserving of life by various methods, through improving the hereditary 
vitality (the ideal of the new science of eugenics), and through hygiene, 
public, semipublic and personal.] 



Part IV. — Results of conserving life. 

CHAPTER XI — PROLONGATION OF LIFE. 

§ 1. Life is lengthening. — So far as we can judge from sta- 
tistics of the average duration of life, it has been on the in- 
crease for three hundred and fifty years, and is now increasing 
more rapidly than ever before. During the seventeenth and 
eighteenth centuries the increase was at the rate of about 
four years per century ; during the first three-quarters of the 
nineteenth century the rate was about nine years. At pres- 
ent in Massachusetts life is lengthening at the rate of about 
fourteen years per century; in Europe about seventeen; and 
in Prussia, the land of medical discovery and its application, 
twenty-seven. In India, where medical progress is practically 
unknown, the life span is short (twenty-five) and remains 
stationary. 

§ 2. Tahle showing further practicable prolongation. — It is 
possible to estimate the effect on the length of life of the par- 
tial elimination of various diseases. Using the statistics, ex- 
perience, and estimate of 18 physicians as to the preventability 
of each of the list of 90 causes of death, we find that the 
length of life could easily be increased from forty-five to 
sixty, an increase of one-third, or fifteen years. This would 
result in a permanent reduction in death rate of about 25 per 
cent. The principal reductions would be from infantile 
diarrhea and enteritis, over 60 per cent.- of which could be 
prevented, with the result of an addition to the average length 



CONSERVATION OF HUMAN LIFE 171 

of life of 2.32 years. Bronelio-pneumoiiia, also an infant dis- 
ease, could be prevented to the extent of 50 per cent., whereby 
life would be lengthened by 0.60 year. Meningitis, which is 
usually fatal at the age of two, could be prevented by at least 
70 per cent., and this prevention would lengthen the average 
life by 0.60 year. Eighty-five per cent, of the mortality by ty- 
phoid fever is unnecessary, and if avoided would lengthen life 
at least 0.65 year. It would be feasible to prevent at least 75 
per cent, of cases of tuberculosis of the lungs, and thereby to 
lengthen life by about two years. If the deaths from violence 
w^ere reduced only 35 per cent., human life would be increased 
by 0.86 year. The prevention of 45 per cent, of cases of pneu- 
monia would lengthen life by 0.94 year. These seven dis- 
eases alone could easily be reduced by these amounts so as to 
lengthen life by eight years. This could be done simply 
through insistence by the public on pure milk, pure water, 
pure air, and reasonable protection from accidents. 

§ 3. Effect of prolongation at different ages. [Discussion 
of a diagram representing the life table of Massachusetts for 
1893-1897.] It shows that about thirteen or more years could 
easily be added to the average duration of life. The diagram 
also shows the extent to which the additional life would fall in 
different ages. The per cent, of life which would fall to the 
ages between llYz a^id 60, taken as the working period, would 
remain the same, namely, about 55 per cent. 

§ 4. Fifteen years a minimum estimate. — The estimate of 
fifteen years is a minimum because, first, it takes no account 
of future medical discoveries, such as a method of curing or 
l)reventing cancer and of postponing old age, as would Metch- 
nikoff; second, it takes little account of the cumulative in- 
fluence of hygiene. The full benefit of hygiene cannot be felt 
until it is practised throughout life, and not at the approach 
of specific danger. Most so-called "causes" of death are 
merely the last straws which break the camel 's back. When a 
pure water supply prevents deaths from typhoid fever, it pre- 
vents two or three times as many deaths from other causes. 



172 CONSERVATION OF HUMAN LIFE 

Third, it takes no account of the racial effects of new health 
ideals leading, in a general way, as they must, to healthier 
marriages. 

§ 5. Need of lengthening human life. — With increase of 
knowledge the period of education or preparation for life 
must constantly increase. This fact creates a need for a 
longer life, with the later periods of life increased in propor- 
tion. The result of such a prolongation will be not the keep- 
ing alive of invalids, but the creation of a population contain- 
ing a large number of vigorous old men. Metchnikoff says, 
* ' The old man will no longer be subject to loss of memory or to 
intellectual weakness; he will be able to apply his great ex- 
perience to the most complicated and most delicate parts of the 
social life." 

§ 6. The normal lifetime. — It is usually recognized that hu- 
man life is abnormally short, but no exact determination has 
ever been made of what constitutes a normal lifetime. 
Flourens maintains that a mammal lives five times the length 
of its growing period, which would mean, since the growing 
period for man does not cease until about 30, a normal human 
lifetime of one hundred and fifty years. Another method of 
estimating normal life is to reckon the length of normal life 
as the time when old age now sets in, 83 years. But clearly, 
if Metchnikoff is right in thinking that old age itself is ab- 
normal, the normal lifetime must exceed 83. Many remark- 
able cases of longevity are on record, but most cases of reputed 
centenarians are not authenticated. Drakenburg's record was 
authentic, and he lived to be 146. Mrs. Wood, of Portland, 
Ore., recently died at 120. To what extent these exceptional 
cases could be made common cannot, as yet, be known, 

CHAPTER XII THE MONEY VALUE OF INCREASED VITALITY. 

§ 1. Money appraisal of preventaMe wastes. — Doctor Farr 
has estimated the net economic value of an English agricul- 
tural laborer at various times of life by discounting his chance 



CONSERVATION OF HUMAN LIFE 173 

of future earnings after subtracting tlie cost of niaintenaneo. 
On the basis of this table we may construct a rough estimate 
of the worth of an average American life at various ages, 
assuming that only three-fourths of those of working age are 
actually earners of money or housekeepers. It gradually rises 
from a value of $90 in the first year to $4,200 at the age of 
30, and then declines until it becomes negative for the higher 
ages. This estimate assumes $700 per year as the average 
earnings in middle life. This is largely conjecture, but is re- 
garded as a very safe estimate. Applying this table to the 
existing population at various ages in the United States, we 
find that the average value of a person now living in the 
United States is $2,900, and the average value of the lives 
now saeriticed by preventable deaths is $1,700. The latter is 
smaller than the former because the age of the dying is 
greater than the age of the living. Applying the $2,900 to 
the population of eighty-five and a half millions, we find that 
our population may be valued as assets at more than $250,000- 
000,000; and since the number of preventable deaths is 
estimated at 630,000, the annual waste from preventable 
deaths is 630,000 tnnes $1,700 or about $1,000,000,000. This 
represents the annual preventable loss of potential earnings. 

We saw in Chapter III that there are always 3,000,000 
persons in the United States on the sick list, of whom about 
1,000,000 are in the working period of life and about three- 
quarters are actually workers and must lose at least $700, 
which makes the aggregate loss from illness more than $500, 
000,000. Adding to this another $500,000,000 as the expense 
of medicines, medical attendance, special foods, etc., we find 
the total cost of illness to be about $1,000,000,000 per year, 
of which it is assumed that at least one-half is preventable. 
Adding the preventable loss from death, $1,000,000,000, to 
the preventable loss from illness, $500,000,000, we find one and 
a half billions as the very lowest at which we can estimate the 
preventable loss from disease and death in this country. The 
true figures from the statistics available may well amount to 



174 CONSERVATION OF HUMAN LIFE 

several times this figure, but when statistics are based partially 
on conjecture, they need to be stated with special caution. 

§ 2. The cost of conservation. — In Huddersfield the annual 
deaths of infants for ten years had been 310. By systematic 
education of mothers, the number in 1907 was reduced to 212. 
The cost of saving these 98 lives was about $2,000 or about 
$20 each. General Leonard Wood declared that the dis- 
covery of the means of preventing yellow fever saves annually 
more lives than were lost in the Cuban war. The hook-worm 
disease in the South impairs the earning power of its work- 
men by 25 or 50 per cent. To restore this earning power costs, 
by curing this disease, on an average, less than $1 for each 
case. These and other examples show that the return on in- 
vestments in health are often several thousand per cent, per 
annum. Probably no such unexploited opportunity for rich 
returns exists in any other field of investment. An actuary 
suggests that if insurance companies should combine to con- 
tribute $200,000 a year for the purpose of improving the pub- 
lic health, the cost would be one-eighth of 1 per cent, of the 
premiums, and it would be reasonable to expect a decrease in 
death claims of much more than 1 per cent. Even this 1 per 
cent, would make a profit of more than seven times the ex- 
pense. 

CHAPTER XIII THE GENERAL VALUE OF INCREASED- VITALITY. 

§ 1. Disease, poverty, and crime. — Money estimates of 
waste of life are necessarily imperfect and sometimes mis- 
leading. The real wastes can only be expressed in terms of 
human misery. Poverty and disease are twin evils and each 
plays into the hands of the other. From each springs vice and 
crime. Again, whatever diminishes poverty tends to improve 
health, and vice versa. 

§ 2. Conservation of natural resources. — The conservation 
of our natural resources — land, raw materials, forests, and 
water — will provide the food, clothing, shelter, and other 



CONSERVATION OF HUiMAN LIFE 175 

means of maintaining liealthy lil'e, while the conservation of 
health likewise tends in many ways to conserve and increase 
wealth. The more vigorous and long lived the race, the better 
utilization it will make of its natural resources. This will be 
true for two reasons in particular: First, the greater inven- 
tiveness or resourcefulness of vigorous minds in vigorous 
bodies. Civilization consists chiefly in invention and the most 
progressive nations are those whose rate of invention is most 
rapid. Second, the greater foresight and solicitude for the 
future. As it is usually the normal healthy man who pro- 
vides life insurance for his family, so it will be the normal 
healthy nation which will take due care of its resources for the 
benefit of generations yet unborn. 

CHAPTER XIV-:— THINGS WHICH NEED TO BE DONE. 

§ 1. Enumeration of principal measures. — Federal, State 
and municipal boards of health should be better appreciated 
and supported. Their powers of investigation, administra- 
tion, and disseminating information should be enlarged. 
School hygiene should be practised, and personal hygiene more 
emphasized. The multiplication of degenerates should be 
made impossible. 



WAGES OF FARM LABOE 

[Extract from the Yearbook of the Department of Agriculture, 1910, 
pp. 194-200. Paper by George K. Holmes, Chief of Division of Pro- 
duction and Distribution, Bureau of Statistics.] 

Various investigations. The subject of the wage rates of 
farm labor was first systematically investigated in this 
country by the Bureau of Statistics of the Department of 
Agriculture in 1866. The investigation was repeated with 
variations every few years until the latest one in 1909. The 
results of nineteen investigations are of record, covering the 
period of forty-four years, beginning with the abnormal con- 
ditions at the close of the Civil War and passing through the 
two severe industrial depressions of 1873-1877 and 1893- 
1897, and the less severe depressions of 1884-86, 1903-4, and 
1907-8. 

From the beginning of this period to about 1897 agricultural 
overproduction was frequent. Immense areas of new public 
land came into cultivation, and farmers were painfully in debt, 
and often the prices of products were unprofitable, if not posi- 
tively below the cost of production. Since 1897, and more es- 
pecially since 1902, the financial condition of farmers has 
much improved. All of the conditions mentioned may be re- 
lated to the wages of farm labor, and, in fact, apparently have 
been. 

In the statement of wage rates, contained in this article, 
all original rates during the currency period 1866-1878 have 
been converted to gold. Some of the investigations were made 
in the spring with no explanation whether the published rates 
represented the current year or the preceding year; indeed, 
some of the wage rates, as, for instance, the rates of day labor 

176 



WAGICR OF FAini LAROR 177 

in harvest, must ueeessarily have belonged to the preeeding 
year. In another case two investigations Avere made, but the 
published results were combined. These statements account 
for the use oi" a double year in several instances. 

Wage rates of men per month. The average wage rate of 
$15.50 was paid for the labor of men on farms per month, in 
liiring by the year without board, in the United States in 1866. 
This average rate was maintained in 1869, after which there 
was an increase to $17.10 in 1875; to $18.52 in 1880 or 1881 ; 
to $19.22 in 1885; and in 1909 to $25.46. During the entire 
period the wage rate increased about two-thirds. From 1866 
to 1909 the increase in the North Atlantic States was from 
$22.04 to $30.89 ; in the South Atlantic States, from $10.67 to 
$18.76; in the North Central States, from $20.39 to $30.55; in 
the South Central States, from $12.57 to $20.27 ; and in the 
Western States, from $40.28 to $44.35, a rate of increase in the 
last-mentioned group far below that of the other divisions. 

The foregoing are money rates of wages, and do not include 
supplemental wages not expressed in money which are more 
or less customary in all parts of the country. Among the 
items of supplemental wages are use of dwelling, often with 
garden and accommodations for cow and swine ; wood for fuel ; 
pasture for cow, horse, or swine ; and other items. 

For onl}^ two years, 1866 and 1909, was the wage rate as- 
certained for the outdoor labor of men per month in hiring by 
the season without board, and the rates are higher than they 
are for hiring by the year. In 1866 the average rate was 
$18.08; in 1909, $28.22. 

The highest monthly rate, in hiring by the season, paid in 
any geographic division in 1909 was $48.04 in the Western ; 
after which follow in order, $35.11 in the North Atlantic ; $33. 
64 in the North Central; $22.48 in the South Central; and 
$20.86 in the Soutli Atlantic. 

During the period 1890-1906 wage rates were not ascer- 
tained for hiring by the year and season separately, but for 
the two combined, and the hirings were combined for 1909. 

12 



178 WAGES OF FARM LABOR 

During this period monthly wage rates in hiring for the season 
and year combined, without board, increased from $19,45 to 
$27.43. The increase in the North Atlantic division was from 
$24.72 to $33.68; in the South Atlantic from $13.94 to $20.13; 
in the North Central from $22.25 to $32.90; in the South 
Central from $16.10 to $21.85; and in the Western from 
$33.96 to $47.24. 

Rates per day. Every one of the nineteen investigations of 
the wage rates of farm labor included the rate per day in har- 
vest work with board. At the beginning of the period, in 
1866, the rate was $1.04 and the increase was to $1.18 in 1875, 
followed by a decline to $1.04 at the end of the industrial de- 
pression of that time, after which there was an advance con- 
tinuously to $1.20 in 1882 ; but the depression of 1884-1886 
and a period of overproduction and low prices for farm prod- 
ucts reduced the rate below that of 1882 until, in the de- 
pression of 1893-1897, the rate was as low as 96 cents, after 
which there was a marked advance to $1.45 in 1906 and a rate 
of $1.43 in 1909. 

Among the geographic divisions in 1909 the highest wage 
rate for harvest work with board was $2.02 in the Western 
States, after which follow in order, $1.87 in the North Central 
States ; $1.62 in the North Atlantic ; $1.10 in the South Central ; 
and $1.03 in the South Atlantic. 

In the North Atlantic division the rate increased through- 
out this period, 1866-1909, from $1.32 to $1.62 ; in the South 
Atlantic division from 79 cents to $1.03 ; in the North Central 
States from $1.31 to $1.87 ; in the South Central States from 
92 cents to $1.10; and in the Western States from $1.93 to 
$2.02. 

Lower rates than the foregoing were paid for day labor in 
other than harvest work with board. The average for the 
United States begins with 64 cents in 1866, followed by fluctua- 
tions similar to those of harvest wages, and ends the period in 
1909 with $1.03. 

The gain during the forty-four years was from 86 cents to 



WAGES OF FARxM LABOR 179 

$1.16 in the North Atlantic division; from 43 cents to 73 cents 
in tlio South Athmtic ; from 83 cents to $1.32 in the North 
Central; and from 55 cents to 82 cents in the South Central; 
while on the contrary there was a decline from $1.49 in 1866 
and $1.50 in 1869 to $1.48 in 1909 in the Western States. 

Industrialism, trade, and transportation. Several causes 
aft'ecting farm wages were investigated in 1909. In the mat- 
ter that follows dependence was placed on the census of 1900, 
except for the rates of wages. Farm wages are high in States 
in which there has been large development of manufacturing, 
mining, mechanical pursuits, trade, and transportation in com- 
parison with States poorly or less developed in these directions, 
and conversely wages are lower in those States in which agri- 
culture is predominant than in States where it is a subordinate 
industry. States in which the urban population is a large 
percentage of the entire population are those States in which 
the wages of farm labor are higher than in those in which 
urban population is of minor account. 

Relation between production and wage rates. Necessarily 
in the long course of time the employing farmer must depend 
upon the value of his products for the wages that he pays to 
his laborers. He can not go on indefinitely paying wages out 
of capital, but he must in the general experience pay them out 
of farm products. Hence it follows as a matter of inference 
that farm wages may be higher in those States in which the 
value of the products per worker is higher than in those States 
in which the value of products per worker is lower. 

This conclusion is amply substantiated in the investigation 
of farm wages in 1909. The highest w^ages are paid in the 
Western division of States, and in this division the average 
value of farm products per agricultural worker in 1899 was 
$759. Next below this division in both rate of wages and 
average value of farm products per worker, $678, is the North 
Central division ; and third in order in both respects is the 
North Atlantic division. The South Central division is fourth 
in order in both rate of wages and value of products per 



180 WAGES OF FARM LABOR 

worker, which is $271 ; and last of all is the South Atlantic 
division in both respects, the average value of products per 
worker being $233. These values stand for gross amount of 
products, and not for net wealth produced. 

Wages supplementary to money rates. The nominal 
money rate of wages paid for farm labor by no means fully 
represents the real wages received by the laborer. There are 
two important additions to the nominal money rate of wages 
which enter little if at all into the thoughts and plans of agri- 
cultural laborers. A farm laborer receiving, say, $30 per 
month, as he did in the North Atlantic and North Central 
States in 1909, often receives supplemental wages in the form 
of use of dwelling and garden, accommodations for cow, pigs, 
and poultry. The value of the supplemental wage allowances 
... is relatively a large addition to the nominal rate. 

In the case of the man receiving $30 in money wages, the 
rental value of dwelling and appurtenances would probably 
be about $3.25 to $4.50. If the farm laborer gets firewood as 
an item of supplemental wages, its reported value per month 
ranges from about $1.06 to $2.39, the latter figure being ap- 
plicable to the $30 laborer in the North. 

It often happens that the laborer receives supplementary to 
his money rate of wages the privilege of pasturing his cow, 
horse, or swine, and the estimated monthly cost of this as an 
average for the United States is from 65 cents to $1.61. Or, 
there may be an allowance for feed outside of pasturage for 
cow, or horse, or swine, or poultry, and the cost of this as 
established by this investigation ranges from $1.11 to $3.11. 

A very common supplementary wage allowance in some 
parts of the country, especially in the North Central States, 
is the frequent use of a horse and buggy by the farm laborer. 
The monthly value of this has been estimated by the corre- 
spondents of the Bureau of Statistics in all parts of the United 
States, with the result that it ranges from 87 cents to $2.37. 
Or, the laborer may own a horse, and stabling and feed are 
provided by his employer in addition to the money rate of 



WAGKS OF FARM LABOR 181 

wages. For this service it is estimated that the cost ranges 
from 45 cents to $2 per month throughout the entire country. 

Perhaps the hiborer's family also receives without specific 
charge a considerable quantity of fruit. The value of this 
fruit is estimated on a monthly basis, although it may have 
been received within one season, and ranges from 62 cents to 
$1.64 monthly throughout the year. If the laborer is a single 
man, his employer hires a woman to do his laundry work as a 
part of the family wash, and the value of this service is esti- 
mated to range from 75 cents to $2 per month. 

No laborer receives all of these supplemental wages, but it 
often happens that he receives more than one item of them. 
If he is a man of family, an increase of his monthly money 
rate of wages by $5 to $10 worth of supplemental allowances 
and even more is not uncommon in many States. 

Advantage of farm wages in purchasing power. If the 
farm laborer is comparing his nominal rate of money wages 
with the similar rate of the motorman or conductor of the 
electric railway who lives in the city, he must take into con- 
sideration the less costly living that he gets on the farm. In 
some respects it is a better living, against which of course there 
must be made a set-off of features that are in some respects 
worse. 

The farm laborer gets many things at prices which are as 
low as wholesale prices in the motorman 's city, and sometimes 
lower. He can get his supply of poultry at low prices, if he 
does not produce it himself; and so with eggs, milk, and but- 
ter ; sometimes flour and meal ; very likely potatoes and other 
vegetables and fruit. At low prices he may also get fresh 
and salt pork, his fuel and, in many parts of the country, his 
tobacco. If he pays rent for his dwelling, he will pay, say, 
$40 per year, whereas the motorman with a family pays $150. 

All things considered — the allowances received by the farm 
laborer supplemental to the money rate of wages and the lower 
cost of many things tliat he buys as compared with the cost 
in the city — the farm 'laborer receiving nominally $30 per 



182 WAGES OF FARM LABOR 

month really gets, in comparison with his situation as it 
would be if he lived in the city, perhaps more than the motor- 
man or street-car conductor gets, and very likely in most 
cases a larger amount than he would be likely to earn in any 
occupation open to him in the city. 

The money wage rates of farm laborers have increased in a 
marked degree within the last few years, and in this respect 
a comparison may be made with the wages of other working- 
men. A still further comparison may be made between the 
purchasing power of the wages of the farm laborer in terms 
of food and the purchasing power of the wages of working- 
men. The investigations of the United States Bureau of Labor 
make possible this comparison. 

If the mean wage rates of agricultural laborers for the years 
1890-1898 be regarded as 100, the rate per month of the out- 
door labor of men on farms in hiring by the year and season in 
1890 is represented by 100.9. The relative number increased 
to 103.6 in 1893, and there was a sudden decline to 96,3 in 
1894, after which there was an unbroken increase in this rela- 
tive number until in 1907 it was 141.1, 

The purchasing power of the wages of the farm laborer in 
1907 in terms of actual food consumption in comparison with 
the mean of 1890-1898 is represented by the comparative num- 
ber 117,1. In 1907 the corresponding relative number stand- 
ing for the wages of the workingman was 122.5 and the 
purchasing power of his wages in terms of actual food con- 
sumption in 1907 is represented by the relative number 101.7, 
as compared with the mean of 1890-1898 which, as before 
stated, is represented by 100. 

As time advanced after 1890 the farm laborer, setting out 
with wages having a relative purchasing power in terms of 
food about equal to that of the workingman, passed him in 
this respect in 1899, and rapidly gained upon him in subse- 
quent years. 

Ability of laborers to become tenants or owners. In 
the investigation of farm wages in 1909 inquiries were made 



WAGES OF FARM LABOR 183 

to ascertain to what extent male outdoor farm laborers were 
qualified to become i'arm tenants. In the opinion of the cor- 
respondents who supplied answers, 48 per cent, of the laborers 
of the South Central States are so qualified ; 46 per cent, in the 
North Central States; 37 per cent, in the Western; 35 per 
cent, in the South Atlantic ; and, lowest of all, 33 per cent, in 
the North Atlantic States. 

Correspondents were asked whether it was reasonably pos- 
sible for farm laborers and tenants to save enough to buy a 
farm that would support a family even with the help of a 
mortgage, and their replies indicated that 72 per cent, of farm 
laborers and tenants find it reasonably possible to acquire 
farm ownaership. The percentages for the geographic divi- 
sions are all over 70 and under 80 — a remarkably uniform 
condition of affairs with regard to this matter throughout the 
United States. 

Small movement from city to farm. The movement from 
city to farm for the purpose of permanent farm life and labor, 
either for hire or under ownership, has hardly become general 
enough in this country to present recognizable proportions. 
There is a little of this movement here and a little there, but 
nearly all eases are sporadic. 

But there is one sort of labor that goes from city to farm 
which has become large enough to be perceptible, and that is 
seasonal labor for employment, not in general farming opera- 
tions, but for special purposes. The migration of men from 
cities to follow the wheat harvest from Oklahoma to North Da- 
kota is the best known feature of this sort of farm labor. It 
is not so generally known that women and children and some 
men, too, go from the city to the farm at certain seasons to 
harvest cucumbers to be sold to the pickle factory; to pick, 
grade, pack, and dry fruits ; to harvest hops and berries, and 
dig potatoes, and so on with other crops that need a rush of 
labor at time of harvest. Some labor of this sort is applied 
also to the cultivation of crops, as in pulling weeds from beets 
and onions, but this labor does not seem to be used much for 
cultivating crops and not at all for planting. 



"REAL WAGES" IN AMERICAN TOWNS 

[In the British Board of Trade Beport (April, 1911), the following 
comparison of wages and of the two main items in the cost of living 
shows the "large town" in an unexpectedly favorable light. The ques- 
tion occurs whether there are not other elements of income direct and 
indirect, psychic or material, which enter into the balance of advan- 
tages in living in large or small towns, and thus into the "real 
wages" (p. xxxvii).] 

Relation of wages to rents and retail food prices. In the 

two following tables the mean index numbers for the wages 
of skilled men in the building, engineering and printing trades, 
and for rents, food prices and rents and food prices combined, 
have, for convenience, been brought together for the various 
geographical divisions and population groups that have been 
already considered: 

. . . By combining the mean index numbers of the two main 
divisions of the tables — industrial conditions as illustrated by 
selected wages groups and social conditions as illustrated by 
selected food prices and rents — it is possible to derive an index 
number that, so far as this is determined by the element of 
charges for rent and food, may be said roughly to indicate 
"real wages," i.e., the relative purchasing power of work 
people in the different areas and groups. Taking New York 
as 100 and working out the percentage ratios of the mean in- 
dex numbers for wages to those of the mean index numbers 
for rents and food prices combined, the result is shown in the 
table on page 185, 

In the population groups the order as determined by the 
wages index numbers is maintained throughout in the "real 
w^ages" column, although the differences from the New York 
standard are always diminished, the range being from 89 to 

184 



WAGES IN AMERICAN TOWNS 



185 



'Slca.n index numbers. 



Wajji'fl (skilled men) . Rents and food prices. 



o j- 

QJ rr. 

IP 

3 O 



w 



bog 



^ <" • 

rt as 
e o n 



o o 



M 



W 



New York 1 

New England towns. 6 
Other Eastern towns 4 

Central towns G 

Middle West towns.. 5 
JSoutliorn towns G 



Comparison by geographical groups. 



100 
82 
91 
90 

103 
87 



100 
77 
84 
85 
91 
92 



100 
82 
87 
86 
90 
86 



100 
GG 
68 
71 
79 
75 



100 
103 
100 
97 
95 
103 



100 
94 
92 
90 
91 
96 



New York (popula- 
tion 4,7GG,883) ... 1 
Otiier towns with 

more than 500,000 

inhabitants 8 97 

Towns with from 

250.000 to 500,000 

inhabitants 5 92 

Towns with from 

lOO.noo to 250,000 

inhabitants 8 87 

Towns with under 

100,000 inhabitants 6 83 



Comparison by jiopulation groups. 
100 100 100 100 100 



88 89 78 98 

86 87 73 96 

83 85 69 101 

85 82 64 102 



100 

93 

90 

93 
93 



100 instead of 83 to 100, and for the two largest groups of 
towns showing, as thus measured, no appreciable difference 
from New York. 

In the geographical divisions the position as shown is some- 
what different, the rather advantageous price levels of the 
to-^VT^s of the Middle West combined with a high level of 
wages, especially in the building trades, giving an index num- 
ber for "real wages," as calculated, 4 points higher than for 
New York itself. On the other hand, the high prices of the 
New England group of towns combined with a lower level of 
wages in the selected trades give a level of "real wages" 15 

1 In the eonstniction of this index number food prices have been given 
a weight of three and rents of one. 



186 



WAGES IN AMERICAN TOWNS 



Number 
of towns 
in group. 



Wages of 
skilled men 
iu building, 
engineering, 
and print- 
ins trades. 



Approximate 
Rents and relative 
food prices level of 
combined, "real wages." 



New York 

New England towns 
Other Eastern towns 

Central towns 

Middle West towns . . 
Southern towns 



Comparison by geographical groups. 

1 100 100 100 

6 80 94 85 

4 87 92 95 
6 87 90 97 

5 95 91 104 

6 88 96 92 



New York (popula- 
tion 4,766,883)... 

Other towns with 
more than 500,000 
inhabitants 

Towns with from 
250,000 to 500,000 
ifihabitants 

Towns with from 
100,000 to 250,000 
inhabitants 

Towns with under 
100,000 inhabitants 



Comparison by population groups. 
1 100 100 100 



91 


93 


98 


88 


90 


98 


85 


93 


91 


83 


93 


89 



per cent, lower than that of New York, and 7 points lower 
than the Southern group of towns — the group which ranks 
next above that of New England in the order of purchasing 
power as calculated in the table. Apart from these two 
groups the difference from the New York standard does not 
exceed 5 points. It would be unwise to press the comparisons 
shown unduly, but the difference of 19 points shown as be- 
tween the New England group and the towns of the Middle 
West is considerable, and may probably be taken as an indi- 
cation of real differences that exist between a center of indus- 
try, such as that of New England, that is now somewhere re- 
moved from the main centers of development, and one, such 
as that of the towns of the Middle West, that is comparatively 
new and able to benefit more immediately from the great 
natural resources of the country. 



IMMIGRATION AND CONDITIONS OF LABOR 

[By Act of Congress, February 20, 1907, an Immigration Commission 
was created, to consist of three Senators, three members of the House 
of Representatives, and three citizens to be appointed by the Presi- 
dent of tiie United States. Tliis commission had the duty of making 
full "inquiry, examination and investigation," of the subject of immi- 
gration. The results of tlie Commission's thorough work will be 
embodied in forty-two volumes, and "tlie gist of the information" 
thus collected is presented in a volume prepared by Professor J. W. 
Jenks (one of the commissioners) with the collaboration of W. J. 
Lauek, expert in charge of the industrial investigations. (Tlie Immi- 
gration Problem, N. Y. Funk and Wagnalls, 1912.) 

By permission we reproduce (with some amendments by the author) 
the greater part of the chapter containing the conclusions as to the 
effect of immigration on wages, entitled, "The immigrant as a dynamic 
factor in industry" (pp. 182-197).] 

The absorption of so larg;e numbers of alien people into 
the mines and mannfacturing establishments, and into the 
general labor force of the United States, was obviously at- 
tended by very important results. These effects of the intense 
employment of southern and eastern Europeans may be 
briefly considered, from (1) the standpoint of the general in- 
dustrial situation, and (2) that of native Americans and older 
■workmen. Before entering into a discussion of these effects, 
however, it will be necessary, in order that the situation may 
be fully comprehended, to review briefly the personal and 
industrial qualities of the recent immigrant labor supply to 
the United States. These are briefly set forth below. 

Lack of technical training. ... An exceedingly small 
proportion have had any training abroad for the industrial 
occupations in which they have found employment in the 
United States. More recent immigrants have been drawn 

187 



188 IMMIGRATrON AND LABOR 

from the agricultural classes of southern and eastern Europe, 
having been farmers or farm laborers in their native lands. 
The only exception is the Hebrews, three-fifths of whom were 
engaged in some form of manufacturing or hand-trades before 
coming to this country. 

Illiteracy and inability to speak English. The new im- 
migrant labor supply, owing to the fact that it is composed 
of men of non-English-speaking races, and is characterized by 
a high degree of illiteracy, has been found to possess but small 
resources upon which to develop industrial efficiency and ad- 
vancement. Owing to their segregation and isolation from 
the native American population in living and working con- 
ditions, their progress in acquiring the use of the English 
language, and in learning to read and write, has been very 
slow. 

Their necessitous condition. . . . Immigrants from the 
south and east of Europe have usually had but a few dollars 
in their possession when the port of disembarkation in this 
country has been reached. During the five years from 1905 
to 1909 inclusive the average amount per person among these 
immigrants has been somewhat more than one-third as much 
as among immigrants from northern and western Europe. 
Consequently, finding it absolutely imperative to engage in 
work at once, they have not been in a position to take excep- 
tion to wages or working conditions, but must obtain employ- 
ment on the terms offered or suffer from actual want. 

Standards of living. The standards of living of the recent 
industrial workers from the south and east of Europe have 
also been very low. Furthermore, the recent immigrants be- 
ing usually single, or, if married, having left their wives 
abroad, have in large measure adopted a group instead of 
a family living arrangement, and thereby have reduced their 
cost of living to a point far below that of the American or of 
the older immigrant in the same industry. The method of 
living often followed is that commonly known as the "board- 
ing-boss" system. . . . 



IMMIGRATION AND LABOR 189 

Under this geueral nietliod of living-, which prevails among 
the greater proportion of the imniigTaut households, the entire 
outlay for necessary living expenses of each adult member 
ranges from $9 to $15 each month. The additional ex- 
penditures of the recent immigrant wage-earners are small. 
Every effort has been made to save as much as possible. The 
entire life interest and activity of the average wage-earner 
from southern and eastern Europe has seemed to revolve 
about three points: (1) to earn the largest possible amount 
under the existing conditions of work; (2) to live upon the 
basis of minimum cheapness, and (3) to save as much as 
possible. All living arrangements have been subordinated to 
the desire to reduce the cost of living to its lowest level. 
Comfort seems not to be considered. With such standards of 
living the older employees have been unable, or have found 
it extremely difficult, to compete. 

Lack of permanent interest. . . . Recent immigrants who 
have sought work in American industries as a whole have mani- 
fested but a small degree of permanent interest in their em- 
ployment or in the industry. They have constituted a mobile, 
migratory, and disturbing wage-earning class, constrained 
mainly by their economic interest, and moving readily from 
place to place according to changes in working conditions or 
fluctuations in the demand for labor. This condition of affairs 
is made possible by the fact that so large a proportion of the 
recent immigrant employees are single men, or married men 
whose wives are abroad, and by the additional fact that the 
prevailing method of living among immigrant workmen is 
such as to enable them to detach themselves from an occupa- 
tion or a locality w^henever they may wish. Their accumula- 
tions also are in the form of cash or are quickly convertible 
into cash. In brief, the recent immigrant has no property 
or other constraining interests wliieh attach him to a com- 
munity, and the larger proportion are free to follow tlie best 
industrial inducements. 

This characteristic has both a good and a bad influence. 



190 IMMIGRATION AND LABOR 

It creates a certain flexibility in the labor supply, and to 
a certain extent brings about an exodus from the country in 
times of depression and curtailment of employment. It also 
causes an increased pressure and competition within the coun- 
try. Probably the bad effect of this characteristic is greater 
than the good, all things considered. 

Tractability of the immigrant. . . . The members of the 
larger number of races of recent entrance to the mines, mills 
and factories have been tractable and easily managed. This 
quality seems to be a temperamental one, acquired through 
past conditions of life in their native lands. In the normal 
life of the mines, mills and factories, the southern and east- 
ern Europeans have exhibited a pronounced tendency toward 
being easily managed by employers and toward being imposed 
upon without protest, which has created the impression of 
subserviency. This characteristic, while strong, is confined, 
however, to the immigrant wage-earners of comparatively short 
residence in this country, and results from their lack of 
training or experience abroad, and from the difference be- 
tween their standards and aspirations and those of older im- 
migrant employees and native American industrial workers. 

If the characteristics of the recent immigrant labor supply 
to the United States, as outlined above, be carefully borne 
in mind, the conditions which have been produced by its 
employment may be quickly realized. 

Effect upon the use of machinery. . . . The lack of skill 
and industrial training of the recent immigrant to the United 
States has stimulated the invention of mechanical methods and 
processes which might be conducted by unskilled industrial 
workers as a substitute for the skilled operatives formerly 
required. This condition of affairs obviously must have been 
true, or the expansion of American industry within recent 
years would not have been possible. A large number of 
illustrations of this tendency might be cited. Probably three 
of the best, however, are the automatic looms and the ring spin- 
dles in the cotton-goods manufacturing industry, the bottle- 



lALMIGUATION AND LABOR 191 

blowing and casting machines in bottle and other glass factor- 
ies, and the machines for mining coal. 

Change of the form of industrial organization. Another, 
but more minor, general industrial effect of the employment 
of the southern and eastern Europeans is observable in the 
increase in the number of subforemen in many industries. 
This situation arises principally from the fact that the recent 
immigrants are usually of non-English-speaking races, and 
therefore require a larger amount of supervision than the 
native Americans and older immigrants from the United 
Kingdom and northern Europe. The function of the subor- 
dinate foremen is chiefly that of an interpreter. 

As regards other changes in industrial organization and 
methods, probably the most important effect observable is 
seen in the creation of a number of special occupations, the 
incumbents of which perform all the dangerous or responsible 
work which before the employment of southern and eastern 
Europeans was distributed over the entire operating force. 
The best example of this tendency is to be found in the 
newly developed occupation of "shot-firer" in bituminous 
and anthracite coal mines. The mine worker in this occu- 
pation prepares and discharges the blasts or shots for bring- 
ing down the coal. Until within recent years each miner did 
his own blasting, but with the employment of the untrained 
southern and eastern Europeans in the mines, it was soon 
found that the safety of the operating forces and the main- 
tenance of the quality of the output required that blasting 
should be done by experienced native American or older 
immigrant employees. . . . 

Working conditions. The lack of industrial training and 
experience of the recent immigrant before coming to the 
United States, together with his illiteracy and inability 
to speak English, has had the effect of exposing the original 
employees to unsafe and unsanitary working conditions, or has 
led to the imposition of conditions of employment which the 
native American or older immigrant employees have cou- 



192 IMMIGRATION AND LABOR 

sidered unsatisfactory and in some cases unbearable. When 
the older employees have found dangerous and unhealthy con- 
ditions prevailing in the mines and manufacturing establish- 
ments and have protested, the recent immigrant employees, 
usually through ignorance of mining or other working meth- 
ods, have manifested a vs^illingness to accept the alleged un- 
satisfactory conditions. In a large number of eases the lack 
of training and experience of the southern and eastern 
European affects only his ovrn safety. Ou the other hand, 
his ignorant acquiescence in dangerous and unsanitary work- 
ing conditions may make the continuance of such conditions 
possible and become a menace to a part or to the whole of an 
operating force of an industrial establishment. In mining, 
the presence of an untrained employee may constitute an ele- 
ment of danger to the entire body of workmen. There seems 
to be a direct causal relation between the extensive employment 
of recent immigrants in American mines and the extraordinary 
increase within recent years in the number of mining acci- 
dents. It is an undisputed fact that the greatest number 
of accidents in bituminous coal mines arise from two causes: 
(1) the recklessness, and (2) the ignorance and inexperience 
of employees. When the lack of training of the recent im- 
migrant abroad is considered in connection with the fact 
that he becomes a workman in the mines immediately upon his 
arrival in this country, and when it is recalled that a large 
proportion of the new arrivals are not only illiterate and 
unable to read any precautionary notices posted in the mines, 
but also unable to speak English and consequently without 
ability to comprehend instructions intelligently, the inference 
is plain that the employment of recent immigrants has caused 
a deterioration in working conditions. 

No complete statistics have been compiled as to the con- 
nection between accidents and races employed, but the figures 
available clearly indicate the conclusion that there has been 
a direct relation between the employment of untrained for- 
eigners and the prevalence of mining casualties. The mining 



IMMIGRATION AM) LABOR 193 

inspectors of the several eoal-producing States, the United 
States Geological Survey, and the older employees in the in- 
dustry, also bear testimony m this respect to the effect of 
the employment of the southern and eastern European. The 
opinion of the Geological Survey is of especial interest and 
may be briefly quoted: 

Another impoitaiit factor in the United States is to be found in tlie 
nationality of tlie miners. Most of tlie men are foreign-born, a large 
proportion of them are unable to understand English freely, and a 
stUl larger number are unable to read or write that language. Some 
of them are inexperienced and do not take proper precautions either 
for tlieir own safety or that of others. This becomes a most serious 
menace unless they are restrained by properly enforced regulations. . . . 

The immigrant and labor organizations. The entrance into 
operating forces of the mines and manufacturing establish- 
ments, in such large numbers, of the races of recent 
immigration, has also had the effect of weakening the labor 
organizations of the original employees, and in some of the 
industries has caused their entire demoralization and disrup- 
tion. This has been due to the character of the recent immi- 
grant labor supply, and to the fact that so large numbers of 
recent immigrants have found employment in American in- 
dustries within such a short period of time. On account of 
lack of industrial training and experience, low standards of 
living, as compared with native American wage-earners, their 
necessitous condition on coming to this country and their 
tractability, southern and eastern Europeans, as already 
noted, have been willing to accept the existing rates of com- 
pensation and working conditions. The thriftiness and in- 
dustriousness of recent immigrants have also made them 
unwilling to enter into labor disputes involving loss of time, 
or to join labor organizations to which it is necessary to pay 
regular dues. As a consequence, they have not affiliated with 
labor organizations unless compelled to do so as a preliminary 
step toward ac(|uiring work; and then, after becoming mem- 
bers of the labor union, they have manifested but little in- 



194 IMMIGRATION AND LABOR 

terest in the tenets or policy of the organization. In the 
instances where they have united with the labor organizations, 
on the occasion of strikes or labor dissensions, they have usu- 
ally refused to maintain membership for any extended period 
of time, thus rendering difficult the unionization of the indus- 
try or occupation in which they are engaged. 

Furthermore, the fact that recent immigrants are usually 
of non-English-speaking races, and their high degree of 
illiteracy, have made their absorption by the labor organiza- 
tions very slow and expensive. In many cases, too, the con- 
scious policy of the employers of mixing the races in different 
departments and divisions of labor, in order, by a diversity 
of tongues, to prevent concerted action on the part of em- 
ployees, has made unionization of the immigrant almost im- 
possible. 

The significant result of the whole situation has been that 
the influx of the southern and eastern Europeans has been too 
rapid to permit of their absorption by the labor organizations 
which were in existence before their arrival. In some indus- 
tries the influence and power of the labor unions are con- 
cerned only with those occupations in which the competition of 
the southern and eastern European has been only indirectly 
or remotely felt, and consequently the labor organizations 
have not been very seriously affected. In the occupations 
and industries in which the pressure of the competi- 
tion of the recent immigrant has been dii*ectly felt, either 
because the nature of the work was such as to permit of the 
immediate employment of the immigrant or through the inven- 
tion of improved machinery his employment was made possible 
in occupations which formerly required training and appren- 
ticeship, the labor organizations have been, in a great many 
cases, completely overwhelmed and disrupted. In other indus- 
tries and occupations in which the elements of skilled train- 
ing and experience were requisite, such as in certain divisions 
of the glass-manufacturing industry, the effect of the employ- 



IMMIGRATION AND LABOR 105 

mcut of recent immigrants upon labor organizations has not 
been followed by such injurious results. 

Racial displacement. Competition of the southern and 
eastern European has led to a voluntary or involuntary dis- 
placement, in certain occupations and industries, of the native 
American and of the older immigrant employees from Great 
Britain and northern Europe. These racial displacements 
have manifested themselves in three ways: 

(a) A large proportion of native Americans and older 
immigrant employees from Great Britain and northern 
Europe have left certain industries, such as bituminous and 
anthracite coal mining and iron and steel manufacturing. 

(b) A part of the earlier employees who remained in the 
industries in which they were employed before the advent of 
the southern and eastern European, have been able, because 
of the demand growing out of the general industrial expan- 
sion, to rise to more skilled and responsible executive and 
technical positions which required employees of training and 
experience. In the larger number of cases, however, where 
the older employees remained in a certain industry after the 
pressure o£ the competition of the recent immigrant had be- 
gun to be felt, they relinc^uished their former positions and 
segregated themselves in certain other occupations. This 
tendency is best illustrated by the distribution of employees 
according to race in bituminous coal mines. In this industry 
all the so-called "company" occupations, which are paid on 
the basis of a daily, weekly, or monthly rate, are filled by 
native Americans or older immigrants and their children, 
while the southern and eastern Europeans are confined to 
pick mining and the unskilled and common labor. The same 
situation exists in other branches of mannfacturing enter- 
prise. A stigma has become attached to the working in the 
same occupations as the southern and eastern European so 
that, in some cases, as in the bituminous coal mining industry, 
the older class of employees segregate in occupations wliich. 



196 IMMIGRATION AND LABOR 

from the standpoint of compensation, are less desirable than 
those occupied by recent immigrants. In most industries the 
native American and older immigrant workmen who have 
remained in the same occupations in which the recent immi- 
grants are predominant are the thriftless, unprogressive 
elements of the original operating forces. 

Another striking feature of the competition of southern 
and eastern Europeans is the fact that in the case of most 
industries, such as iron and steel, textile and glass manu- 
facturing, and the dift'erent forms of mining, the children of 
native Americans and of the older immigrants from Great 
Britain and northern Europe are not entering the industries 
in which their fathers have been employed. All classes of 
manufacturers claim that they are unable to secure a sufficient 
number of native-born employees to insure the development of 
the necessary number of workmen to fill the positions of 
skill and responsibility in their establishments. This con- 
dition of affairs is attributed to three factors: (1) General 
or technical education has enabled a considerable number of 
the children of industrial workers to command business, pro- 
fessional or technical occupations apparently more desirable 
than those of their fathers. (2) The conditions of work 
which have resulted from the employment of recent immi- 
grants have rendered certain industrial occupations unat- 
tractive to the wage-earner of native birth. (3) Occupations 
other than those in which southern and eastern Europeans 
are engaged are sought for the reason that popular opinion 
attaches to them a more satisfactory social status and a higher 
degree of respectability. Whatever may be the cause of this 
aversion of older employees to working by the side of the 
new arrivals, the existence of the feeling has been crystallized 
into one of the most potent causes of racial substitution in 
manufacturing and mining occupations. 

Effects upon wages and hours of work, . , , There is no 
evidence to show that the employment of southern and east- 
ern European wage-earners has caused a direct lowering of 



IMMIGRATION AND LABOR 197 

wages or nu extcusioii in the hours of work in mines and 
industrial establishments. It is undoubtedly true that the 
availability of the large supply of reeent immigrant labor 
prevented the increase in wages which otherwise would have 
resulted during recent years from the increased demand for 
labor. ... As a general proposition, it may be said that all 
improvements in conditions and iuereases in rates of pay have 
been secured in spite of their presence. The reeent immigrant, 
in other words, has not aetivelj^ opposed the movements to- 
ward better conditions of employment and higher wages, 
but his availability and his general characteristics and atti- 
tude have constituted a passive opposition which has been most 
effective. 

General conclusions. (1) The influx of recent immigrants 
lias, by affortling an adecjuate labor supply, made possible 
the remarkable expansion in mining and manufacturing in 
the United States during the past thirty years. 

(2) The extensive employment of southern and eastern 
Europeans has seriously affected the native Americans and 
older immigrant employees from Great Britain and north- 
ern Europe by causing displacements and by retarding ad- 
vancement in rates of pay and improvements in conditions of 
employment. 

(3) Industrial efficiency among the recent immigrant wage- 
earners has been very slowly developed, owing to their illit- 
eracy and inability to speak English. 

(4) For these same reasons the general progress toward 
assimilation and the attainment of American standards of 
work and living has also been very slow. 

(5) The conclusion of greatest significance developed by 
the general industrial investigation of the United States Immi- 
gration Commission is that the point of complete saturation 
has already been reached in the employment of recent immi- 
grants in mining and manufacturing establishments. Owing 
to the rapid expansion in industry which lias taken place 
during the past thirty years, and the constantly increasing 



198 IMMIGRATION AND LABOR 

employment of southern and eastern Europeans, it has been 
impossible to assimilate the newcomers, politically or socially, 
or to educate them to American standards of compensation, 
efficiency or conditions of employment, 

(6) Too much emphasis, in the discussion of immigration 
within recent years, has been placed upon the social and 
political results of recent immigration vastly important as 
they are. The problem at present is really fundamentally 
an industrial one, and should be principally considered in 
its economic aspects. 



WAGES AND COST OF LIVING 

[In "A comparative study of railway wages and the cost of living," 
etc. (Bulletin 34 of the Bureau of Railway Economics, Washington, 
D. C, June, 1912, L. G. McPherson, Director; F. H. Dixon, Chief 
Statistician), summaries are made of various official reports on the 
subject, including the recent report of the British Board of Trade. 
The following are the main conclusions, conveniently summarized by 
the Bureau (p. 5) :] 

Railway wages. Information is not obtainable upon which, 
can be based a comprehensive statement of railway wages 
being paid at this time in the different countries. There- 
fore it is necessary to make comparisons for the latest year 
for which comparable data are available. 

The average daily compensation of railway employees of all 
classes for the year 1910 was in the United States, $2,23; 
in the United Kingdom, $1.05; excluding supplementary al- 
lowances negligibly affecting the average, it was in Prussia- 
Hesse 81 cents, and in Austria 89 cents. The lowest paid 
railway employee in the United States, the ordinary track- 
man, receives a greater compensation than many of the rail- 
way employees of France, even those of higher grades and 
with responsible duties. The compensation of railway em- 
ployees is from two to three times as high in the United States 
as in Italy. 

A recent report of the Board of Trade on railway wages 
shows that the average weekly pay of enginemen in the United 
Kingdom in 1907 was $11.17; of firemen, $6.67. In the same 
year enginemen on American railways received an average 
weekly compensation of $25.80, counting six days to the week, 
and firemen $15.24. Recent returns make it clear that in 1912 
enginemen and firemen in the United States are compensated 

199 



200 WAGES AND COST OF LIVING 

at rates of pay for specific runs that are two, three and four 
times as high as the corresponding rates on representative 
English railways. The annual compensation of euginemen in 
the United States, as reported by two representative rail- 
way companies, now ranges from $1,100 in switching service 
to over $2,800 in passenger service, and of firemen from $700 
in switching service to over $1,700 in passenger service. 

For Continental Europe official returns in requisite detail 
are not available for a later year than 1908. The salaries and 
allowances of the typical engineman in Germany amounted for 
that year to $646.88, in Austria to $870.80 ; of a fireman in 
Germany to $424.59, in Austria to $532.03. The annual 
compensation of enginemen on two of the principal railways 
of France ranged in 1908 from $505.66 to $906.91, and of 
firemen from $324.24 to $595.98. In Italy enginemen re- 
ceived in 1908, salary and allowances included, from $581.10 
to $812.70 a year; firemen, from $330.30 to $475.05 a year. 
In these Continental countries the maximum compensation 
is received only after many years of service. 

The average annual compensation of enginemen in the 
United States in 1908, on an estimated basis of 300 days' 
service, was $1,335; of firemen, $792. In this country the 
rate of compensation to these employees does not depend on 
length of service. 

In Belgium enginemen received in 1907 from $23.16 to 
$38.60 a month; firemen, from $17.37 to $23.16 a month; 
conductors and station employees, from 46 cents to 96 cents 
a day. In the United States, in the same year 1907, engine- 
men averaged, on the basis of 25 days' service, $107.50 a 
month ; firemen, $63.50 a month ; conductors, $3.69 a day ; 
station employees, from $1.78 to $2.05 a day. 

An accurate wage comparison must take into account rel- 
ative cost of living, and this has been done, so far as ascer- 
tainable data permits. 

Rents [page 60], The material regarding rents gathered 
by the British Board of Trade in its investigations into cost 



Three 
rooms. 
5v85— 121 
47 — 57 
76—114 
66— 81 


Four 

rooms. 

$110—152 

57— 70 

95—133 


Five 
rooms. 
$146—189 
70— 82 
114—164 


50— 63 


70— 85 
44— 55 
78— 97 
54— 76 




37— 53 




58— 94 




44— 60 




88—117 




28— 36 


34— 44 





WAGES AND COST OF LIVING 201 

of living may be summarized iu the Tollowing tabular state- 
ment. The statistics relate to the housing accommodations of 
the kind and grade usually occupied by workingmen 's families 
in the different countries. 

BENTAL PER TEAB.l 

Two 
Country. rooms. 

United Slates 

Eiiglainl and Wales 2 $38—44 

London 57 — 95 

Scotland 48 — 54 

Ireland 32—44 

France 30—36 

Paria 39—78 

Germany 34 — 44 

Berlin 63—76 

Belgium 22—29 

The Board of Trade found that the predominant type of 
dwelling in the United States and in England and Wales 
was the four- or five-room house. The English house usually 
possesses, in addition, a scullery, or back kitchen. In the 
other European countries the houses, or in some instances 
j3ats, contained a smaller number of rooms, usually from two 
to three or from three to four. That is, the standard of 
housing was higher, on the average, in the United States and 
England than elsewhere. With this fact in mind, it becomes 
clear that a comparison of rental expenditures, for example, 
of the United States and France, would involve setting the 
rental value of a four-room house in the United States over 
against that of a three-room house or flat in France. Such 
a comparison would undoubtedly be proper and fair, but 
in the interest of caution rental values of the same grade of 

1 Inasmuch as local rates, or taxes, in the United Kingdom are paid by 
the occupier of a house, they are included in the rentals here reported 
for the United Kingdom, but not for tlie other countries. The burden of 
taxation must iu the last analysis fall on the rentei-, whether the tax is 
paid directly by him or by the owner; this being true, no deduction is 
made in this table of the tax paid by the British occupier. 

- Exclusive of London. 



202 WAGES AND COST OF LIVING 

accommodation are here compared, regardless of standards 
of housing in the several countries. 

The rental value of a three-room house or flat in the United 
States is higher than in any other country. In fact, with 
the exception of London, Paris and Berlin, the minimum 
value of such accommodation in the United States is higher 
than the maximum value of the same accommodation else- 
where. The same is true of four-room houses or flats, again 
excepting London. Data are not available for two-room 
accommodations. . . . 

The range of rents may be standardized by taking the 
median or halfway point as the type in each case. . . . 

TYPICAL ANNUAL BENTALS. 

Country. ' 

United States 

England and Waleso 

London 

Scotland . . 

Ireland 

Erance 

Paris 

Germany 

Berlin 

Belgium 

a Exclusive of London. 

This table, while only approximate, shows clearly that 
rental values in the United States range considerably higher 
than in the several European countries under consideration. 

[The examination of a table of prices of standard grades of com- 
modities leads to the following conclusions.] 

Comparative costs of living [page 66]. The comparison 
made by the Board of Trade of the cost of living in Eng- 
land and Wales with that in France shows that an English 
workingmau transported to France would pay for the same 
standard of comfort about 18 per cent, more than he does 
in England. If coal be excluded, he would pay 11 per cent, 
more. Conversely, a French workingman would pay in Eng- 



e rooms. 


Four rooms. 


Five rooms 


$102 


$131 


$167 


52 


63 


76 


95 


114 


139 


73 






56 


77 




45 


49 




76 


87 




52 


65 




102 






32 


39 





WAGES AND COST OF LIVING 203 

land about 5.7 per cent, less for the same standard of com- 
fort than he is paying in France. 

The English workingman, transported to Germany and liv- 
ing at his own standard of comfort, would pay 18 per cent, 
more than he is paying in England. This excludes a com- 
parison of tea and coffee. Conversely, a German working- 
man transported to England, and living at his old standard 
of comfort, would find that his English price level was about 
7.4 per cent, lower than it was in Germany. 

Excluding commodities for which comparative prices could 
not be secured, the English workingman who moved to Bel- 
gium would find his budget increased by 2 per cent., or if 
coal were excluded, slightly decreased. Conversely, a Bel- 
gian workingman moving to England would find his cost of 
living increased by about 2 per cent., or if coal were excluded, 
increased by slightly over 5 per cent. 

An English family moving to the United States and main- 
taining its regular standard of living, would find its budget- 
ary expenses increased by 38 per cent. Conversely, an 
American family would pay 20 per cent, less for its accustomed 
dietary if it moved to England than it is now paying in the 
United States. These comparisons between the cost of liv- 
ing in England and the United States relate to the year 
1909, a special investigation being made into English prices 
iu February, 1909, to provide a budgetary basis comparable 
with that of the United States. 

Combining these various comparisons, and bringing them 
to a common basis, the following are the results. An Eng- 
lish family which was transferred in turn to the respective 
countries named below and maintained its normal standard 
of living, would find its expenditures for food and fuel to 
stand in the following relations to its expenditures in Eng- 
land, the latter being taken as par, or 100 per cent. : 

In England and Wales 100 per cent. 

In Belgium 102 " 

In France 118 " 

In Germany 118 " " 

In the United States 138 " " 



204 WAGES AND COST OF LIVING 

From this it will be seen that the cost of living in the United 
States, compared with that of France, is in the ratio of 138 
to 118, or 117.8 per cent. — that is, it is 17.8 per cent, higher 
than in France, Similarly, the cost of living in the United 
States is 

17.8 per cent, higher than in Germany, 

35.3 per cent, higher than in Belgium, and 

38.0 per cent, higher than in the United Kingdom. 

This is not a complete statement of the situation, inasmuch 
as it takes into account only those articles, and in only those 
proportions, used by the British workingman in his dietary. 
His standard would doubtless rise in moving to the United 
States; but for the same standard of living, the foregoing 
comparisons hold. 

Budgets. The Board of Trade, in its investigations, made a 
study of budgets of workingmen's families in the five coun- 
tries studied. Below will be f oimd a brief resum^e, presented 
on a per capita basis: 

EXPENDITUBES FOE FOOD PER CAPITA. 

Per week. Per year. 

United States $1.78 $92.33 

France 1.20 62.40 

Germany 98 50.96 

United Kingdom 98 50.85 

Belgium 94 49.12 

Thus the actual expenditure of the average American 
workingman for food in the northern part of the United 
States is seen to be greater than that of the average work- 
ingman in France by 48.0 per cent. ; greater than that of the 
workingman in Germany by 81.2 per cent. ; greater than that 
of the workingman in England and Wales by 81.6 per cent. ; 
and greater than the amount spent by the workingman of 
Belgium by 88.0 per cent. 

The United States and England and Wales [page 68]. 
The English-American comparison of the cost of living, as 
ascertained by the British Board of Trade in 1909, rests 



WAGES AND COST OF LIVING 205 

on returns secured from but three trades — the building, the 
engineering, and the printing trades. . . . 

On the average the wages of the American workman were 
higher than those of the English by 130 per cent. ; his hours 
of work per week were fewer by 4 per cent ; his payments for 
rent for the same kind and amount of house accommodation 
were higher by 107 per cent. ; the retail prices of his food, 
weighted according to the consumption shown in the British 
budgets were, as has earlier been shown, higher by 38 per 
cent. Put more briefly, it is found that while the wages 
of the American workman are the higher by 130 per cent., 
his expenditures for food and rent combined, on the British 
standard of living, are the higher by only 52 per cent. A 
much greater margin over the expenditures for food and 
rent is, therefore, available in the United States than in 
England and Wales. This margin, says the report of the 
Board of Trade, "makes possible a command of the neces- 
saries and conveniences of life that is both nominally and 
really greater than that enjoyed by the corresponding class 
in this country (England)." 



COTTON-MILL EFFICIENCY AND MACHINERY 

[From the Tariff Board Report on Cotton Manufactures, the follow- 
ing extracts are taken, showing the use of automatic machinery in 
America as compared with England. (House Document No. 643, 62d 
Congress, 2d session, p. 468.)] 

Factory organizations compared. Contrary to the pre- 
vailing organization in the cotton industry in England, the 
mills in this country have both spinning and weaving de- 
partments. 

The spinning mill is, as a rule, equipped with sufficient 
machinery to produce all the yarn, both warp and filling, 
necessary for the continuous operation of the weaving mill. 
There are a few mills manufacturing specialties, where, on 
account of the variety of yarns required and the small quan- 
tity of each number used or the special processing necessary, 
it is impracticable to operate a spinning mill, and in such 
cases the yarn is purchased from spinning mills manufacturing 
special numbers of yarn, for which they find a ready market. 
Where it is necessary for a spinning mill to manufacture 
a wide range of yarns for the supply of the weaving mill, it 
follows that the manufacture cannot be carried on as eco- 
nomically per unit of production as in the mill where the pro- 
duction is limited to the manufacture of but few numbers 
of yarns. 

Many American mills, especially in the North, produce a 
wide variety of cloths, involving the use of many different 
kinds of yarn from coarse to very fine. On the other hand, 
some mills M^eaving principally plain constructions are re- 

206 



COTTON-MILL EFFICIENCY 207 

quired for their own needs to spin only a narrow range of 
yarns, frequently but one warp and several fillings. In the 
case of the former mills, the American practice puts them at 
a disadvantage with English spinning mills which produce 
yarns of more uniform count for a regular market. In the 
case of the latter class of mills the advantage of the specializa- 
tion which exists in the English industry seems to be fully 
offset. 

In the United States most of the yarn is manufactured on 
ring spindles, as against the English method of mule spin- 
ning. The production of yarn by ring spinning is greater 
per spindle than mule spinning, though the mule-spun yarn 
is more even in density and softer in finish. . . . 

Cotton waste. Only a part of the raw cotton input of the 
mills reaches the yarn in its finished state. Through each 
operation, as picking, carding, spinning, etc., there is a loss 
of some of the original stock known as waste. A part of 
this waste, which is chiefly due to evaporation, is not re- 
covered, and this is termed "invisible waste," The percen- 
tage of waste in a mill is a varying quantity, due in part to the 
length of the fiber of the raw cotton and the fineness of the 
number of the yarn spun. In mills producing coarse yarns 
where it is possible to rework part of the waste the loss is 
not over 10 per cent, of the input of raw cotton, while in 
the mills producing higher or finer numbers of yarns the loss 
will approximate 35 per cent. All of the waste, except that 
known as invisible waste, which does not amount to more 
than 3 or 4 per cent., is recovered and reworked or sold. . . . 

Conditions influencing efficiency. The efficiency of the 
weaving mills is affected by numerous conditions, making it 
impracticable to accurately present these conditions in any 
tabular statement. No two weaving mills are affected by 
exactly the same conditions, there being a difference either in 
the loom equipment, the size and breaking strength of the 
yarn used, or the organization of the cloth produced. 



208 COTTON-MILL EFFICIENCY 

During the course of the inquiry the agents of the Tariff 
Board found that a number of mills originally constructed to 
manufacture plain print cloth are now producing fancy cloth 
of simple design or construction. The manufacturers stated 
that this change was necessitated by a lack of demand for the 
print cloth, and that while the production of each loom appro- 
priated for fancy constructions was decreased, the better 
demand for fancy cloth more than offset the loss due to de- 
creased production. This change often made it necessary to 
weave a much narrower cloth than that for which the loom was 
best adapted, and there is also a loss that must be reckoned 
due to idle looms where any considerable amount of changing 
from one construction to another is necessitated. 

The breaking of a warp or filling yarn requires that the 
loom be stopped and the difficulty be adjusted. Some of 
the looms are equipped with automatic stop-motion attach- 
ments, which automatically stop the loom whenever a warp 
or filling yarn is broken. This makes it possible for a weaver 
to attend a greater number of looms, a lesser degree of watch- 
fulness being required. 

Some of the factors which affect the efficiency of a cotton 
mill are discussed in connection with the following tables. 

Weaving costs with automatic and plain looms. In or- 
der to show the exact difference in cost of production that can 
be directly attributed to the efficiency of a plant, the follow- 
ing illustration is given: 

(In . . . the comparisons of costs which follow, the labor 
cost of yarn per pound of cloth includes the total labor in 
the "spinning mill," or through the spooling process, and 
the labor cost of weaving per pound of cloth includes all the 
remaining productive labor in the mill. This also applies 
to the division of the works expense in the cost of yarn and 
weaving) . . . [One table omitted here.] 

The exact difference in the cost of manufacture between 
plain and automatic looms under similar conditions is shown 
in the following illustration: 



COTTON-MILL EFFICIENCY 209 



Automatic Plain 

looms. looms. 

Width, linear yards per pound 38i/^ — 5.50 

Sley X picks 64 X 64 

\\ urp and lilling yarns 

Labor cost of yarn per pound of cloth 0.0:]3012 0.033254 

Labor cost of weaving per pound of cloth 028110 .046250 

Total labor cost per pound of cloth 061122 .079504 



Works expense cost of yarn per pound of cloth .016710 .017036 

Works expense cost of weaving per pound of cloth .013300 .014660 

Total works expense per pound of cloth.. .030019 .031606 

Depreciation cost per pound of cloth 0179SS .018765 

Total conversion cost per pound of cloth 109129 .120965 

Cotton cost per pound of cloth 165067 .165067 

Total cost per pound of cloth 274196 .295032 

Total cost per yard of cloth 049494 .053255 

In this comparison two costs are given on the same cloth 
woven in the same mill, but one on automatic looms and the 
other on plain looms. It will be seen that the total cost per 
pound of cloth on plain looms is a little over two cents higher 
than that on automatic looms, this difference being almost 
entirely in the labor cost of weaving. Reduced to a yard- 
age basis, this results in the cost on plain looms being over 
one-third of a cent per yard higher than that on automatic 
looms. 

Age of machinery. Another factor which determines the 
efficiency of a mill is the age of machinery. Table 147 
[omitted here] shows the age of the spinning spindles and 
looms in the mills covered by the investigation of the Board. 

The age of machinery aft'ects the cost of production in a 
number of ways: 

(1) The older a machine gets the more frequently it is 
subject to breakdowns, thus reducing the productive capacity 
of the mill during the time the machine stands idle, and 
thereby increasing the overhead charges per unit of product. 

(2) It increases the repair expense of the mill. 

(3) To the extent that new machines are put on the market 
capable of a greater output within a given period of time, 

14 



210 COTTOX-MILL EFFICIENCY 

either through greater speed or through improvements which 
make it possible for one employee to attend a greater number 
of machine units, the old machine tends to increase the rel- 
ative cost of production of the mill, as compared with mills 
using more modern machines. 

To this extent a knowledge of the age of the machinery 
in a mill is of great value as tending to explain differences 
in cost of production for the same products in different mills, 
and also aiding in arriving at a conclusion as to the up-to- 
dateness of the industry as a whole in so far as it has been 
covered by the investigation. 

In this connection it may be added that while the investiga- 
tion of the Board covered only about 20 per cent, of the total 
number of cotton spindles and looms in operation in the coun- 
try, it is fairly representative of the conditions in the industry 
as a whole. . . . 

As will be seen from table 147 [here omitted] over 39 per 
cent, of all the spindles and over 46 per cent, of all the looms 
investigated were not over 10 years old, and 78 per cent, of all 
the spindles and over 74 per cent, of all the looms were not 
over 20 years old. Twelve and five-tenths per cent, of the 
spindles and 17 per cent, of the looms were from 20 to 30 
years old, while 9.3 per cent, of the former and 6.9 per cent, 
of the latter were from 30 to 40 years old. Over 10,000 
spindles and 532 looms, constituting 0.2 and 0.4 per cent, 
of the respective totals were from 60 to 65 years old. 

Proportion of domestic to foreign machinery. It will 
be seen [from table 148, omitted here] that by far the greater 
part of all kinds of machinery, except mule spindles, is of 
domestic make. Thus, of the looms, at least 99.7 per cent. 
is of domestic make, and only 0.3 per cent, foreign. Of the 
ring spindles, 99.9 per cent, is domestic and 0.1 per cent, 
foreign. Of the roving or jack spindles, 85.8 per cent, is 
domestic and 14.2 per cent, foreign. The only exception, as 
stated, was in the case of mule spindles of which 83.1 per 
cent, is foreign and 16.9 per cent, of domestic make. 



COTTON-MILL EFFICIENCY 211 

Loom production, [page 494]. The table [153, here 
omitted] sho-\vs that the prodiietion per weaver per hour 
ou 29 of the 31 dilt'ereiit kinds of cloth was very much greater 
in the United States than in England, reaching in some in- 
stances to five times as much. The reason for this is shown in 
the column, "Number of looms attended per weaver." 

In England the weavers on sample number 14 of the cloths 
tended two looms, on sample No. 89 three looms, and on the 
other 29 samples four looms each. 

In the United States the number tended on most of the 
cloths ranged from 6 to 28 looms per weaver. On 7 samples 
as low as 3 looms per weaver were operated in the United 
States, the average in 2 mills being 5 looms and in 4 mills 6 
looms each. On samples 30 and 31 the average number of 
looms tended in this country was the same as in England. 

The column "Speed of looms in picks per minute" shows 
that on 22 samples the speed of the English looms exceeded 
that of the United States looms. On 2 samples it was the 
same in both countries, and on 7 samples it was less in Eng- 
land than in the United States. 

The column "Yards produced per loom per hour" shows 
that owing to greater speed of English looms on 22 samples the 
English production per loom is higher; on 5 samples it was 
the same as in this country; and on 4 samples it was less in 
England. 

In the table comparison is made of English looms with the 
automatic as well as the plain looms used in the United States. 
The number of plain looms attended by one weaver in the 
United States greatly exceeds the number attended in Eng- 
land. 

As the automatic looms in use in Lancashire form less than 
1 per cent, of the total looms there, they are not included in 
the comparative production shown in this table. Their use, 
however, is growing in England, though slowly. The report 
of the British tariff commission shows that in 1905 there were 
"only about 1000 of these working in England," while in May, 



212 COTTON-MILL EFFICIENCY 

1911, there were 5409 automatic looms in use in Lancashire 
in a total of 741,260 looms of all kinds in use there at that 
date. It is estimated that there are at the date of this re- 
port nearly 10,000 automatic looms in Great Britain, as against 
approximately 220,000 in the United States. 

Factors limiting automatic looms. Several reasons are 
advanced for the delay in the more general adoption of the 
automatic loom in England. For one thing, the automatic 
loom costs about two and a half times the ordinary plain 
loom, and this has deterred many English mills already 
equipped with plain looms from adopting them. Again, 
English mills do not run such a large number of looms on a 
single-standard fabric as do American mills, and the auto- 
matic loom has not been found so suitable as plain looms 
for the varied Lancashire trade in dhoties and other fancies. 
Furthermore, the automatic loom requires stronger and better 
warp yarn than the plain loom, for the breakage of a single 
warp thread stops the loom. The American mills use strong 
ringspun warp yarns; while a large portion of the English 
mills, producing mainly for the poorer classes of the Orient 
and other regions, have to size heavily to make goods cheap 
enough, and they ordinarily use a much lower grade of yarn 
than would American mills for fabrics that pass imder the 
same trade name. The warp yarns used in the bulk of Eng- 
lish cloths are mule spun; and since they are soft twisted 
to enable them to take up a larger amount of sizing and to 
give the required feel to the cloth, they are not so suited to 
the automatic loom as are the stronger American yarns. 

An additional reason for the limited use of the automatic 
looms appears to be the objection to them of the labor unions, 
which have been afraid that they would be used to displace 
labor and to throw more work on the weaver without propor- 
tionately increasing his earnings. 

Men and women are employed in weaving both in Eng- 
land and in the United States. It is probable that upon the 
whole there is little difference between the amount of work 



COTTON-MILL EFFICIENCY 213 

(lone by men weavers and by women weavers. The protlnc- 
tion of the men weavers is, if anything, slightly greater. As 
has already been shown, there is a difference as between Eng- 
land and the United States in the practice of supplying 
weavers with assistance. ,In England a weaver has assigned 
to him a given number of looms, and is commonly required 
to do all the "laboring" connected with these looms. In the 
Tinited States the weavers have, as a general rule, no helpers, 
but the work of oiling, sweeping, and carrying yarn and cloth 
is done by operatives known as "oilers," "sweepers," and 
"tilling carriers," etc., employed by the mill. In a number 
of the American mills for which information was secured the 
wages of oilers and other employees mentioned amounted to 
slightly over 7 per cent, of the wages of the weavers. This 
percentage may therefore be regarded as the amount of as- 
sistance which the American weavers receive in their work. 
As the English w^eavers usually pay their own help, the per- 
centage representing the assistance received by American 
weavers should be taken into consideration when comparing 
the amount of work done. 



THE MINBiUM RATE POLICY 

[The following extracts have been made with the assistance of the 
author, D. A. McCabe, assistant professor of economics in Princeton 
University, and are printed with the publishers' approval. These 
selections comprise parts of the Introduction, pp. 10-16, and parts 
of Chapter II, found on pp. 83-106 (rate grouping by competency) 
and on pp. 114-119 (wages and efficiency), from The Standard Rate 
in American Trade Unions, Johns Hopkins University Studies in His- 
torical and Political Science, 30tli series, No. 2, 1912.] 

The standard rate as a minimum [page 10], The main- 
teuanee of standard rates has always been a leading feature of 
American trade-union wage policies. The unions have from 
the first sought to attain their primary purpose of advancing 
wages by substituting collectively established rates of wages 
for those which their members could obtain in isolated wage 
bargains. Almost universally their efforts in this direction 
have taken the form of the establishment and enforcement 
of standard rates. . , . The standard rate is ordinarily ex- 
pressed as a minimum rate. Members are allowed to receive 
more than the standard rate, but for a member to work for 
less, unless specifically exempted by the union, is a violation 
of the union rule. The establishment of a standard rate does 
not, therefore, necessarily secure to the unions complete par- 
ticipation in the settlement of the wage rate to be paid in 
each individual case. Such full participation would require 
that the union rate should be the actual rate paid to each 
workman. Union piece prices are almost always the rates 
actually paid, for there is ordinarily no good reason why the 
employers should pay one member more per piece than an- 
other for the same kind of work. Standard time rates, how- 
ever, are, with few exceptions, not only nominally but actually 

214 



THE MINIMUM RATE POLICY 215 

minimum rates, leaving it necessary for individual settle- 
ments to determine in each case whether and to what extent 
the rate to be actually paid shall exceed the standard. 

Piece rates as contrasted with time rates are therefore intrin- 
sically better adapted to collective action. Since those who are 
working by the piece on the same kinds of product or parts of a 
product ordinarily are paid at the same rate, they all have a 
common interest in the rate. But there is no such advan- 
tageous rallying point in the matter of time wages. Indeed 
there is a natural tendency in time wages to variation on ac- 
count of differences in competency among the workmen. In 
the case of the piece rate, or of the normal work day, on 
the contrary, the union makes a uniform demand, which is 
assumed to advance the interests of all alike, and can be 
easily made the subject of union bargaining for the group as 
a whole. 

Difficulty of rating time workers. Bargaining for time 
wages thus presents an inherent difficulty. It is not reducible 
to a uniform demand which is to affect all alike. On the other 
hand the policy of establishing a distinct time rate for each 
individual worker has not commended itself to the unions. 
This policy would give the union full control of actual 
wages, if it could be enforced; but the union rate would 
in each case apply to an individual only. There w^ould be 
collective action, but not for a rate with collective application. 
As actually in vogue, the standard time rate may not give 
complete union determination of actual wages; but it does 
make possible a rate of collective application. It has the 
advantage of simplicity as a means of determining wages 
for a considerable number of men iu collective bargaining and 
as an obligation to be enforced by the union. In choosing 
to enforce minimum time rates rather than actual individual 
rates the unions have surrendered a possible complete partici- 
pation in the determination of actual wages in favor of a kind 
of union rate which makes much more feasible the establish- 
ment by union bargaining, or — in the absence of a union 



216 THE MINIMUM RATE POLICY 

agreement with the employer — by collective enforcement, of 
the rates adopted by the union. . . . 

Problems in adjusting the minimum [page 15]. The 
questions of chief interest in the employment of the standard 
time rate grow out of the fact that, as workmen are found, 
there are variations in efficiency in practically every group of 
workers. If the union is to secure effective participation in 
wage determination the minimum rate must be so adjusted 
that a relatively large proportion of the workmen covered by 
a particular rate will be favorably affected in a perceptible 
way by its existence. The basis chosen for the inclusion of 
workers within a given rate group very largely determines 
the difficulty of reaching this result. If the groups are so 
divided that the members of each are of almost equal wage- 
earning capacity the minimum rate will stand in approxi- 
mately the same relation to the wages of all the members of 
the group. In such a case the use of the standard rate for 
time wages seems to reap a maximum of union advantage. 
If, however, the members employed in a given trade or branch 
of a trade vary considerably in worth to the employer, unless 
they are grouped according to competency and each group 
rated correspondingly, any particular standard rate will either 
be so low as to be of little appreciable support to the most 
efficient men, or so high as to exclude a number of the least 
efficient from employment at the union rate. 

There is obviously an inherent difficulty in establishing 
standard rates for workers who are not standardized. Oc- 
casionally unions have sought for a solution in the direction 
of standardizing the workers by dividing them into groups 
according to competency. But the usual basis of grouping 
is the kind of work done, not the efficiency with which it is 
done. An appreciable tendency toward standardization of 
men engaged in the same kind of work or subject to the 
same minimum, at least toward the elimination of those below 
a somewhat variable level of capacity, is fostered in many 
unions by the requirements as to competency insisted on for 



THE MINIMUM HATE POLICY 217 

admission to membership. In llie great majority of eases, 
however, the same rate applies to workers of appreciably 
differing capacities, and the establishment of the standard 
leaves some members of more than average efficiency under 
the necessity of individual contracting to secure wages 
higher than their less efficient fellow members. The influ- 
ence of the various phases of union policy connected with 
the maintenance of minimum time rates on the opportunities 
of the speedier or more highly skilled workmen to obtain 
more than the union rate, and the extent to which they 
actually do obtain more, are among the most significant ques- 
tions connected with union wage policies — and the most diffi- 
cult of exact answer. . . . 

Group rates by kinds of work in a trade [page 83]. The 
line of demarcation between groups subject to different mini- 
mum rates has nearly always to do with the kind of Avork the 
members are performing, not with the degree of competency 
shown in doing work of the same kind. In many trades there 
are two or more separate kinds of work which are recognized 
as constituting distinct branches or subdivisions of the trade 
or craft, each in itself the special, and for the most part ex- 
clusive, occupation of those who follow it. Where there are 
such occupational groups within the membership of a union 
— and in most time-working trades there are at least two, 
and often several — the general union policy is to establish 
different minimum rates for groups recognized as requiring 
different grades of skill. . . . 

The differences in occupation within the membership of a 
union are often wider than those within what may be consid- 
ered a trade or craft. Some unions, the so-called "industrial" 
unions, include workmen of several trades within their mem- 
bership. ... In such unions as these, the question of rating 
naturally resolves itself at the outset into a separate deter- 
mination for each of the distinct trades. 

]\Iany unions are composed of the members of trades 
which have been much subdivided in recent years in conse- 



218 THE MINIMUM KATE POLICY 

quence of advances in productive methods. The Garment 
Workers, Ladies' Garment Workers, Boot and Shoe Work- 
ers, Bookbinders, and Laundry Workers, are conspicuous 
examples of this class. In each of these trades there are 
subdivisions which require no common apprenticeship, and 
from one to another of which workers do not ordinarily 
pass. Each of these subdivisions is; virtually a distinct trade 
or craft from the standpoint of wage rating and is recog- 
nized as such by the unions. . . . 

[Page 86] Finally, there are unions which maintain dis- 
tinct minimum rates for groups of workers divided according 
to the stages of advancement which they have reached in the 
trade. The International Printing Pressmen's Union is such 
a union. . . . The Lithographers also fix a series of rates 
of wide range for their members in charge of presses, accord- 
ing to the size of the press. The Machine Printers' rates 
for printing wall paper vary in similar fashion with the 
number of colors printed. 

There are many other instances of differentiation in rates 
within a union according to degree of proficiency. . . . The 
rates of the Compressed Air Workers vary according to the 
pounds of pressure under which the work is done. This is 
partly a matter of physical strength, but also a matter of 
experience in more difficult work. 

There are also unions which set higher rates for groups of 
men who have specialized on work which is above the skill of 
the ordinary journeyman. [Various examples] ... In some 
trades, too, foremen and men "in charge of gangs" are given 
higher minimum rates. In nearly all of these unions the 
higher-rated men are in the same unions with the members 
following the common branch of the trade. Where men are 
not separately rated, although engaged regularly on work 
recognized as requiring more skill than is expected of the 
average journeyman, it is usually because these men are com- 
paratively few in number, or do not feel the need of a higher 
union rate to secure higher wages, or because the union does 



THE MINIMUM KATE POLICY 219 

not wish the work to be assigned to a specialized class of 
workmen. 

Sometimes a distinction is made in the minimum rate for 
other reasons than differences in trade skill. The Granite 
Cutters have a higher rate for outside work than for work 
done under shelter, to compensate for the exposure and greater 
lack of regularity in the former. Men working on surface 
machines are also usually given higher rates in this union, not 
because the work requires greater than average skill but on 
account of the exposure to the fine dust. . . . Sometimes men 
in the building trades, jDarticularly bricklayers and carpenters, 
are allowed by their local unions to take special yearly jobs 
at rates that amount to less per day than the union minimum. 
These are usually positions with corporations with large es- 
tablishments which do their own repair work and undertake 
no building contracts. These positions are exempted from 
the regular daily rate because the work is not done in compe- 
tition with contractors in the trade and because the men earn 
more in the year than members at the minimum. 

Rate grouping by competency, opposed [page 94]. The 
suggestion has often been made to time-working unions that 
instead of setting a single rate for all men engaged in the 
same kind of work they should divide their members into 
classes on the basis of competency and fix a separate rate for 
each class. Nearly every important time-working union has 
at some time or other faced a proposal of this kind emanating 
from the employers or from its own members. The employers 
have urged that such a plan would remove the chief defect 
in the minimum rate, that is, the necessity which the em- 
ployer is under of paying the less competent men the same 
rate as the good, average man. Within the unions the pro- 
posal has been advocated on the ground that it will allow the 
less proficient members to obtain work and at the same time 
make it possible to maintain a high minimum for the better 
men. This policy in rating has naturally been most strongly 
urged upon those unions in which the differences in ef- 



220 THE MINIMUM RATE POLICY 

ficieney among members doing the same work are very large, 
a circumstance which throws into greater relief the fact that 
a large number of men of varying competency are subject to 
the same minimum rate. The classification of men on the 
basis of differences in competency has not, however, com- 
mended itself generally to the unions. Very few unions now 
look upon this method of rating with favor or are willing to 
adopt it except as a temporary expedient. Many of the im- 
portant time-working unions have had experience with the 
plan and nearly all of these have fought for its abolition, in 
nearly all cases with success. . . . 

[Page 97] The general rejection by the unions of the sys- 
tem of grading members for wage rating proceeds from the be- 
lief that it tends to reduce wages through the competition of 
the more poorly paid with the better paid workmen. It has 
usually been found extremely difficult to assign members to 
their grades so exactly as to insure that some men shall not 
be given a lower rate by the union than the general run of 
members of the same capacity are receiving and are required 
to demand. It is difficult, too, to insure that men of lower 
grades shall be transferred to a higher grade when their 
competency rises above that of their grade. The unions con- 
sider it a further objection that the maintenance of a rate or 
rates below the point at which a single minimum would be set 
makes for the retention in the trade of a class of inefficient or 
partially trained workmen. . . . 

Rate grouping in practice. Yet at least two unions in the 
building trades — the Lathers and the Wood Carvers — still ac- 
cept it as an unobjectionable method of wage regulation. . . . 
Local unions in other trades have occasionally found it good 
policy to divide their members into two or three classes ac- 
cording to competency. When a union is first established in 
a locality or when a large plant is unionized the local union 
may find the new members grouped into two or three or even 
more fairly distinct wage classes. If the members have been 
working under the piece system there may be a considerable 



THE iMINIMUM RATE POLICY 221 

divergence in wages, particularly if the work is not highly 
skilled. Under these circumstances it is difficult to find one 
rate that will be satisfactory as a minimum. The adoption of 
a single minimum ii: high would exclude the less capable men, 
and probably make it impossible to secure a wage agreement 
with the employer; a single low minimum would not be of 
much support to the men of higher earning capacity. Rather 
than take either of these courses local unions have in many 
cases preferred to establish two or three rates of wages. In 
such cases, however, the local union expects to eliminate the 
lower rate as soon as possible, and it is usually urged to do 
this by the national union. , . . 

[Page 103 j In some unions there are systems of rating 
which closely resemble grouping according to competency. 
Several unions allow young men just out of apprenticeship to 
work for three or six months or a year at specified rates lower 
than the regular minimum. Permission to work at a lower 
rate is granted to young journeymen who have just finished 
their apprenticeship more frequently by the metal-trades and 
railroad-shop unions than by the building-trades unions. . , . 

[Page 105] Nearly all unions permit members who have be- 
come unable to command the minimum rate because of old 
age or physical infirmity to work for what they can get. 
There are a few time-working unions which have no rule to 
this effect, because the nature of the work is such that expe- 
rience offsets the loss of physical vigor, or because physical 
vigor counts for so much in the work that old men are not 
w^anted by the employers even at lower rates. Some local 
unions w^hich have both piece-price lists and time rates, as 
in a few of the Granite Cutters' branches, provide that old 
men employed by the hour or day shall be paid according to 
what their work averages by the piece bill. Some other local 
unions stipulate that the wages of the exempted men shall be 
agreed upon by a union committee in conference with the em- 
ployer. In very few local unions does the number of ex- 
empted men exceed five per cent, of the membership, and the 



222 THE MINIMUM RATE POLICY 

exemption is made on a much more ascertainable basis than 
competency. . . . 

Wages and efficiency in time work [Page 114]. Very 
little seems to be known as to the differences in efficiency 
among men engaged in the same kind o£ work. It is safe to 
assume, however, that they are not reflected in time-working 
trades with any exactness by the wages paid, even where there 
is no union minimum. When the union confines its action 
in wage rating to the establishment of a single minimum rate 
for members engaged in the same kind of work, it is ob- 
vious that the adjustment of individual earnings to individual 
capacity is not as likely to be secured as under the piece-rate 
system. Even where the union does not discourage large 
outputs, the time wages of the better men do not exceed the 
minimum in the same proportion that the men show efficiency 
above the average. It is safe to state that generally when men 
whose earning capacity is above that of the average journey- 
man are left dependent upon individual bargaining for wages 
above the minimum, they do not receive additional wages com- 
mensurate with their superior capacity. 

Of most time-working unions it can be said, however, that 
the variations in efficiency within the membership are not as 
wide as among men in the same trades outside the union. 
The mere insistence on a minimum rate vrhich is intended to 
be almost as much, if not as much, as the average member 
can successfully demand, necessarily excludes from the union 
men much below the average of competency. Such men can- 
not obtain regular employment at the union rate, and it is 
consequently useless for them to retain union membership. 

Union tests of competency. But time-working unions do 
not rely solely upon a high minimum to keep their member- 
ship clear of men considerably below the average in compe- 
tency. Practically all of the skilled trades require that can- 
didates for membership must prove their competency or be 
vouched for as competent by members who have worked with 
them. Where the testimony of members on the same "job" 



THE MINIMUM RATE POLICY 223 

is accepted as sufficient evidence of competency the test is 
practically reduced to ability to secure employment at the 
minimum rate. In a number of unions, however, as, for in- 
stance, the Plumbers, the Electrical Workers, the Stereotypers 
and Electrotypers, and the Bricklayers, the candidate must 
l)rove his competency by passing a serious examination set by 
a special board or committee. Finally, many time-working 
unions attempt to insure that the membership shall be re- 
cruited from competent journeymen by recognizing a normal 
method of learning the trade under union auspices. The ap- 
prenticeship regulations of the unions are directed in large 
part to this end, as are the provisions made by a number of 
unions for advancement from the status of helper to that of 
journeyman after a given number of years under instruction 
in the former capacit}^ 

Minimum as a maximum. The maintenance of a minimum 
rate by a union also in another way tends to make vs^ages uni- 
form. The fact that a given rate is the "union" rate, and 
as such becomes the center of attention and the subject of 
negotiation and even of conflict — this makes it the presump- 
tive rate. Moreover, many employers who are brought with 
much reluctance to agree to observe the minimum look upon 
the minimum as a "lump" rate which they have agreed to 
pay the union for the labor of its members. These employers 
often take the ground that they should not be expected or can 
not afford to pay the better men more than the minimum, be- 
cause they are compelled to pay the union rate to many men 
who are not worth it. The provisions in agreements noted 
above for ecpial increases for all the men are evidences of this 
feeling. The union officials assert that some employers' as- 
sociations have a rule against paying men more than the mini- 
mum. There is, of course, a greater likelihood of united 
action against the payment of differential wages when the 
minimum is established by agreement of the union and the em- 
l)loyers as a body. 

Competition above minimum. The same forces that lead 



224 THE MINIMUM RATE POLICY 

to the payment of wages above the average rate where there 
is no union minimum, however, often operate to cause the 
payment of wages above the union minimum, even though 
their effectiveness is reduced by the union regulations noted 
above. The chief of these forces is, of course, competition. 
Employers are often compelled to comply with the demands of 
the more efficient men for higher wages in order to retain 
them. There are many employers, too, who pay the better 
men more than the minimum, as a matter of course, as com- 
pensation for superior service and as an inclucement to the 
men to put forth their best efforts.^ 

In any attempt to estimate the extent to which men re- 
ceive wages above the minimum on account of superior effi- 
ciency, it is important to bear in mind that the minimum in 
different scales may stand in very different relation to the 
modal or predominant wage. The proportion of men re- 
ceiving more than the union minimum in a trade is frequently 
large because the competitive wage has increased since the 
minimum was established. Where the minimum is established 
by an agreement it is customary to make it binding for a 
specified period, and if in that time the competitive wage for 
men increases considerably the employers will frequently offer 
wages above the minimum to men of no more than average 
competency. Sometimes the union refrains from raising the 
minimum when an increased demand for men would make that 
possible. In 1906 the secretary of the Bricklayers' and Ma- 
sons' Union cautioned the local unions against putting up the 
rate when the demand is brisk to a point at which it can be 
permanently maintained only by throwing some members out 

1 The payment of a wage rate above the minimum is not the sole form 
of differential compensation. Often the belter men receive the same 
hourly rate but are given more regular employment, the cleanest and 
most desirable work, and even overtime payment for merely nominal work. 
Because of such considerations workmen in the building trades will often 
remain with an employer at the minimum rate when other employers are 
offering two or three cents an hour more. 



THE MINIMUM RATE TOLICY 225 

of regular employment.^ A few branches of the Granite Cut- 
ters have provisions in their agreements to the effect that if an 
employer advertises for men at more than the minimum rate 
he shall pay the higher rate to all in his employ. 

The union minimum is sometimes fixed for other reasons 
below the wage rates of most of the men to whom it applies. 
The rate may be kept low in order to permit men to secure 
employment who would not be able to do so if the predomi- 
nant wage were taken as the minimum. This policy has been 
followed in some cities by the local unions of masons in the 
Bricklayers' and Masons' Union. Local unions of the Ma- 
chinists, too, occasionally set a low minimum rate rather than 
a starting rate and a higher regular minimum. Again, a 
group of workers who usually command a higher rate of pay 
than other journeymen in the trade may not be given a 
separate union rate. An instance in point is that of cabinet 
makers or ''bench men" in the Carpenter's Union who are 
given the same minimum rate as machine wood workers. 

Proportion of workers getting more than minimum wage. 
The extent to which differential wages are paid above the 
imion minimum, when that rate is the rate actually paid to 
the men whose efficiency is about the average, varies widely 
in different trades. There are trades in which differential 
payments of this character are very exceptional. Unskilled 
laborers, such as the ordinary building laborers, are com- 
monly paid one flat rate whether organized or not. The same 
is largely true of men paid by the day or hour in street rail- 
way or railroad service. In union agreements with the street 
railway companies, the minimum rate is usually the same for 
all after the first year of service, and the companies almost 
without exception make this the actual rate. Men in the rail- 
road yard service are paid by the hour and yard engineers, 

1 Annual Reports, 3906, p. 290. Members may not strike for more 
than the minimum rate. But men may strike to enforce payment of 
more than the minimum from a contractor who has agreed to pay more 
and later refuses (Ibid., p. 28). 

33 



226 THE MINIMUM RATE POLICY 

firemen, conductors, and trainmen practically all receive the 
minimum rates set for their respective classes. Men em- 
ployed in railroad shops rarely receive more than the mini- 
mum rates, although in these same trades in the contract 
shops a considerable part of the men receive wages above the 
minimum. Standardization of workmen and of work and the 
practice of dealing with large bodies of men as classes tend 
to standardize the wages paid in the railway service more than 
in trades calling for similar grades of skill in other in- 
dustries,^ 

In the building trades, the higher rates in the large cities 
tend to attract the better men and keep out the poorer and 
this tends to reduce the variations in competency from the 
average, The employment of men in larger numbers and 
the more frequent changing of the men, together with the 
existence of employers' associations for dealing with the 
unions, also make for greater uniformity in actual payment 
in the large cities than in the smaller places.^ Wages among 
the Stone Cutters and the Granite Cutters seem to conform 
more closely to the minimum than in the other buiUiing trades. 
The reason for this in the case of the Stone Cutters has been 
indicated. 

In the printing trades, particularly among the compositors 
and the stereotypers and electrotypers,^ and in the metal 

1 The tendency toward uniform rates for men engaged in the same kind 
of work is stronger in large establishments than in small establishments 
for the same reasons. 

-' It is difiBcult to get anything more than estimates of the percentage 
of men receiving wages above the minimum. The secretary of the Com- 
position Roofers estimates that not more than two per cent, of the mem- 
bers in New York City receive more than the minimum. An oflBcial of 
the Steam Fitters estimates that for his union in New York City the 
proportion is not less than five nor more than ten per cent. 

3 An officer of the local union of the Stereotypers' and Electrotypers' 
Union estimates that about 50 out of G50 members in New York City 
receive more than the minimum. The electrotype finishers, but not the 
electrotype founders, are included in the organization there. In Boston 
where both branches are included, the secretary estimates that forty per 
cent, receive more than the minimum. 



THE MINIMUM RATE POLICY 227 

trades the proportion of workmen receiving more than the 
minimum is larger than in the building trades. The diversi- 
iied nature of the work included within the trade and the 
consequent differences in experience and skill among the mem- 
bership, combined with the absence of graded union rates, ac- 
count largely for tlie prevalence of differential payments 
among the Molders and Machinists.^ 

1 A national official of the Molders' Union estimates that at least thirty 
per cent, of the members receive more than the minimum. This is the 
liighest estimate obtained for any union. In the Iron Molders^ Journal 
for September, 1900 (p. 532), a correspondent declares that there is not 
a foundry in the country in which some men do not get more than the 
minimum. In the number for March, 1900 (p. 147), it was reported that 
in Milwaukee where the minimum was $2.75 "some of our best men get 
$3.50." 



PRICES AND FAEM MANAGEMENT 

[These illustrations of tlie relations in agriculture between costs and 
profitable cultivation are taken from pp. 6-9 of Bulletin 209 of the 
University of Wisconsin Agricultural Experiment Station (May, 1911), 
by H. C. Taylor, Professor of Agricultural Economics.] 

Prices and crop selection. It is essential to good farm 
management that the farmer understand the trend of prices 
in order that he may plant and breed to suit the future market 
on which his products must be sold. 

Within certain regions the question whether one should sow 
oats, barley, or spring wheat is determined by the relative 
prices for which these products can be sold. In given regions 
the choice between corn, potatoes, and sugar beets (crops 
which require cultivation at the same time of the year) should 
be determined on the basis of the profit the farmer can make 
from each of these crops and this depends upon the prices 
for which they can be sold. 

Costs and prices. It has been common to hear the state- 
ment "The price should be high enough to pay the cost of pro- 
duction and a reasonable profit." This phrase when properly 
understood is full of significance. It is a misinterpretation 
however, to assume this phrase to mean that every pro- 
ducer of a given product has a right to expect and to de- 
mand a price which will cover Ms costs and give him what he 
considers a reasonable profit. Costs in a given locality vary 
greatly because of differences in the men in charge of the 
farms. Costs vary greatly in different regions owing to dif- 
ferences in soil and climate, the character and abundance of 
the labor supply and the location with respect to the market. 

Costs and the efficiency of the farmer. It usually happens 
that there is an inefficient producer here and there who is 

223 



PRICES AND FARM MANAGEMENT 22!) 

producing at a cost greater than the price at which other 
farmers find it profitable to produce enough to supply the 
demand. Suppose the price were artificially pushed up to a 
point where the inelHcient farmer can make a profit. This 
would make the enterprise exceedingly profitable to the effi- 
cient farmers, and would tend to increase their production, the 
greater supply would force prices down and the second state 
of the inefficient farmer would be worse than the first. All 
who are producing at a loss should change to some other line 
of production for which their qualifications count for more. 
It often happens, for example, that a low grade dairyman is a 
high grade tobacco producer, that a low grade grain farmer 
can make money in the grazing of cattle, etc. 

Costs vary with natural conditions. Low efficiency of the 
farmer in the given line of production is only one of the 
causes which may result in costs which exceed prices. As has 
been stated, costs are greater in some regions than in others. 
The wheat regions of the world are numerous and widely scat- 
tered. The cost, per bushel, of producing wheat and putting 
it upon the world's central wheat market, Liverpool, varies 
greatly. During periods when the supply of wheat is increas- 
ing slowly and the demand for wheat is increasing at a slightly 
more rapid rate the price of wheat will tend to remain high 
enough to retain in the wheat industry the region where the 
costs are greatest. When, however, as a result of a new dis- 
covery or the extension of means of transportation a new and 
fertile wheat region enters into competition with the old re- 
gions it may happen that the supply of wheat will increase 
more rapidly than the population and to induce the people to 
consume more wheat per capita the price must be lowered. 
As a result of the fall in the wheat price some of the old wheat 
regions will find their costs greater than the prices they can 
get. 

Changes from wheat growing to dairying. This condition 
was brought about in the wheat industry when the fertile 
wheat regions of Kansas, Minnesota, and the Dakotas were 



230 PRICES AND FARM MANAGEMENT 

made accessible, and poured their abundant supplies of grain 
upon the markets of Europe. The farmers of the east of Eng- 
land found wheat growing a losing enterprise. Had they 
understood the cause of the fall in wheat prices they would 
have known that the one thing to do was to drop wheat grow- 
ing and take up some other line where foreign competition was 
not so keen. After a long time this came about, the wheat 
lands were converted into meadows and pastures and the 
dairy industry pays well for the efforts expended. Unfor- 
tunately many farmers held to wheat production long after it 
had ceased to yield a profit. In some cases this resulted in 
bankruptcy which alertness to the price situation might have 
avoided. 

We are not without illustrations of this principle in this 
country. The falling wheat price due to the rapid growth 
of the wheat industry in the northwest was an important fac- 
tor in driving Wisconsin farrtiers from a system of grain 
farming with wheat as the money crop into the livestock in- 
dustry with dairy products as the chief sources of income. 

The westward movement of the wheat industry in the north 
was paralleled by a westward expansion of cotton production 
in the south. From the old centers in Georgia and the Caro- 
linas the cotton industry extended into the fertile "Black 
Prairie" of Alabama, sprang up in the rich alluvial of the 
Mississippi and confluent rivers, and in the Black Prairie of 
Texas. There was a rapid increase in the quantity of cotton 
produced. The increased supply was produced at a lower cost 
than was possible in the old regions. The obvious result was 
falling prices and an unprofitable industry in the old cotton 
regions. 

Burley tobacco produced at lower costs. Another illus- 
tration, which is of particular interest to-day, may be drawn 
from the Burley tobacco situation in Kentucky. Burley to- 
bacco was first grown in Kentucky in the northern part of 
the blue-grass region. This is a rough country where the soil 
soon lost much of its fertility. The industry gradually spread 



PRICES AND FARM MANAGEMENT 231 

southward into the counties of Scott, Bourbon, Franklin, 
Woodford, Fayette and Jessamine. These counties contain 
the bhie limestone region known as the heart of the blue grass 
country. This is a region of unusual natural fertility. A 
large proportion of this land had remained in blue-grass 
pastures from the first settlement of the country. As the to- 
bacco industry commenced to encroach upon this fertile region 
the farmers found it exceedingly profitable to plow up the old 
pastures and plant them in tobacco. Under these conditions 
the supply of tobacco was increased enormously. Prices fell, 
but the farmers in the new regions of production were making 
large profits at prices which meant starvation to the growers 
of the old Burley tobacco centers. 

The blame for the falling prices was laid at the door of the 
tobacco trust, and it is doubtless true that the trust made the 
situation worse, but the condition which made it possible to 
increase the supply at falling costs in the new region of pro- 
duction was the cause of the depressed condition of the grow- 
ers in the old regions of Burley tobacco production. The 
remedy is for the men who are producing tobacco at a loss to 
change to some other line of production or else move to central 
Kentucky, where the fertility of the old pasture lands may 
enable them to make a profit. 

Prices and intensity of culture. The choice of crops and 
of livestock is not the only point where prices are controlling 
factors in the management of a farm. There is a close rela- 
tion between the price of products and the degree of intensity 
of culture which will prove most profitable. High prices 
for products usually results in high land values. High land 
values make it profitable to use land more sparingly. For ex- 
ample fewer acres should be used for a herd of a given number 
of cows or, what is the same thing, more cows must be kept on 
a given area than formerly, if the farmer is to secure maxi- 
mum profits from high-priced land. This means more inten- 
sive culture. 

These illustrations should be sufficient to show that the 



232 PRICES AND FARM MANAGEMENT 

farmer's interest in prices begins long before his product is 
ready for the market, and that he should study prices as a 
farm operator as well as a seller of farm products if he would 
make his farm yield maximum profits. 



SOME FINDINGS ON COTTON MANUFACTURES 

[The "Tariflf Board" report on Schedule / of the tariff of 1909 (Cotton 
Manufactures), was transmitted by President Taft to Congress, March 
26, 1912. In its published form it is a document of 841 pages, in 
two volumes (House Document No. 643, 62d Congress, 2d session). 
The Board's letter of submittal contains, in brief summary, the findings 
of the investigation as to relative costs of production and prices, 
with reference to the existing rates of duty. We omit the intro- 
ductory survey of the scope of the investigation but give the greater 
part of the letter of submittal (pp. 8-17 of the report).] 

Cost of equipment. The method of determining costs 
adopted by the Board does not include the item of interest, 
so that the cost figures as given show nothing regarding the 
original investment necessary to carry on the process of manu- 
facture except the item of depreciation. This item is slight 
so far as cost per yard of cloth is concerned. Obviously, how- 
ever, the relative advantage or disadvantage of the foreign 
and domestic manufacturer in competition is affected by the 
amount of original capital on which interest must be earned. 
Consequently figures are presented showing the relative costs 
of completing and equipping a spinning plant and a weaving 
plant in England and this country, designed to carry on the 
same line of production. From these figures it appears that 
the cost of erecting a building is about 40 per cent, greater in 
this country than in England, the cost of equipment 
for a spinning mill about 70 per cent, higher, and 
the cost of equipment for a weaving plant (with plain 
looms in both countries) about 50 per cent, higher. These 
figures are for the equipment considered adequate for 
a given production in the two countries. It varies somewhat 
according to different methods prevailing in the two countries, 

233 



234 SOME FINDINGS ON COTTON MANUFACTURES 

and the figures do not necessarily establish the relative prices 
of identical machines here and abroad. "Where a mill is 
equipped with automatic looms the cost of the looms is at least 
two and a half times the cost for a mill equipped with plain 
looms. 

A very small part of the cotton machinery used in this 
country is imported, a marked contrast to the case of worsted 
machinery. With the exception of spinning mules, more than 
90 per cent, of the machinery is of domestic manufacture. 
Practically all looms and all ring spindles are of domestic 
make. Of cards and jack spindles about 15 per cent, are of 
foreign make. Mule spinning in this country involves only 
about 20 per cent, of the total number of spindles, and of the 
mules in use in the mills investigated 83 per cent, were im- 
ported. 

Cost of yarns. In comparing the cost of making yarns in 
England and the United States it has seemed essential, in 
view of the fact that 80 per cent, of English spindles are on 
mules and 80 per cent, of American spindles on ring frames, 
to compare the cost of mule spinning in England with the 
cost of ring spinning in this country. As a rule, mule spin- 
ning is a more expensive process, and the production from 
mule spinning is of somewhat finer quality, even with yarns 
of the same nominal count. These facts should be kept in 
mind ; but it is evident that the really significant comparison 
is that between the actual results obtained under the pre- 
vailing methods of each country. 

In the cost of raw material there is practically no advan- 
tage possessed by either country. Any general difference in 
the price between England and the United States is less than 
occurs from mill to mill or month to month in either country. 

The actual book figures for English mills and American 
mills show that in comparing the most efficient mill for which 
we have figures in England with the most efficient mill for 
which we have figures in this country — and these mills are 



SOME FINDINGS ON COTTON MANUFACTURES 235 

typical in both cases — the per cent, of the total English labor 
cost to the total American labor cost per pound of yarn varies 
from 78 to 95 per cent. Comparing all of the yarns selected, 
the English labor cost is found on the average to be practically 
seven-eighths of the American in the case of these two mills. 

In the matter of general expense the difference between the 
two countries is decidedly greater, thereby increasing the dif- 
ference in the total conversion cost of yarn. Again, by com- 
paring the two most efficient mills, as referred to above, it is 
found that the total conversion cost of yarn in England varied 
from 65 to 79 per cent, of the American conversion cost. The 
average on all counts taken shows the English conversion cost 
to be about 73 per cent, of the American. 

It should be noted that these comparisons are based upon 
taking that mill in each country which showed in general the 
lowest cost on the whole range of yarns. On certain particular 
counts a lower cost was shown in other mills, so that the figures 
may be taken as typical for mills of high efficiency. They 
cover warp and filling yarns not higher than 50 's for warp and 
70 's for filling. 

Taking all the mills covered by the investigation in each 
country, there were wider variations in the American costs 
secured than in the English costs, due partly to the fact that 
the English mills were all in the Lancashire district, where 
wages and other conditions are well standardized, while the 
American costs were taken from mills covering a much wider 
area, with much greater differences in labor and other con- 
ditions. Another reason for the wider variations in American 
costs is that the English mills for which figures were secured 
are all of a modern and efficient type, while some of the Amer- 
ican mills included were old and of low efficiency. 

In the ease of most yarns for which figures are given for the 
United States the highest conversion cost is 50 per cent, higher 
than the lowest conversion cost. In a few cases it is nearly 
double. Consequently the difference in conversion cost would 



236 SOME FINDINGS ON COTTON MANUFACTURES 

appear mueli greater in a comparison drawn between mills of 
lowest cost in England and mills of highest cost in the United 
States. 

In this connection care should be taken not to confuse con- 
version cost with the value of the finished yarn. In saying 
that the cost of manufacturing yarn in an English mill is 72 
per cent, of the cost in an American mill, it is not meant that 
the total cost of English yarn, including the value of the cot- 
ton in it, is 72 per cent, of the total cost of the American 
yarn. As a matter of fact, the difference in conversion cost 
between the two countries varies from 3.8 per cent, to 11.9 per 
cent, of the total cost of production in England, including 
raw material. 

It should also be noted that these relative costs do not in- 
clude yarns of the highest counts or other yarns used largely 
for special purposes, since the Board was not able to secure 
sufficiently detailed figures on the higher counts abroad. 
They do include, however, the great mass commonly manu- 
factured in the United States. It is entirely possible that a 
comparison of costs on these special counts or qualities would 
show a different ratio between the two countries than is here 
presented. 

Duties on yarn. ... A comparison of the cost of produc- 
tion in the two countries shows that in the case of the ordinary 
warp and filling yarns the present duty is regularly in excess 
of the difference in cost of conversion. If the relative costs 
only of the two mills having the lowest cost of production are 
considered, it appears that the present duty on the types of 
warps and filling described, ranging from 30 's to 80 's, is in all 
cases more than twice the difference in the total conversion 
cost, and in some cases four or five times the difference. The 
labor costs on these yarns is from 50 per cent, to 60 per cent, 
of the total conversion cost. 

These figures, as stated, are based on the difference in eon- 
version cost between the two mills of lowest cost. Making, 
however, a similar comparison between the lowest cost in Eng- 



SOME FINDINGS ON COTTON MANUFACTURES 237 

land and the highest cost in the United States, in practically 
all cases the duty is greater thau the difference iu the con- 
version cost. . . . 

A somewhat different situation appears in the case of yarns 
of this character which are of higher counts — on two-ply yarns 
and in the ease of bleached, mercerized, and dyed yarns. 
For such yarns the ratio of the duty to the American con- 
version cost is decidedly less, ranging from 30 to 45 per cent. 
A duty which is 30 per cent, of the American conversion cost 
would oft'set the difference in cost when the English conver- 
sion cost is 70 per cent, of the American. . , . 

Cost of weaving. In the matter of turning yarn into 
woven fabrics the Board was unable to secure such detailed 
foreign-cost figures as in the case of spinning, and the relative 
cost of this process of manufacture here and abroad cannot 
be stated in the same way. For tariff purposes, however, 
valuable conclusions may be drawn from a comparison of 
relative prices under competitive conditions in this and other 
countries and from a comparison of duties with domestic pro- 
duction costs. These are considered below. 

It is necessary, however, to recognize an important dif- 
ference in the methods employed in the United States and 
England in this branch of the industry. There seems to be 
no wide difference between the two countries in the amount of 
machinery tended or in the output per operative in the spin- 
ning of yarn. In the case of weaving the situation is quite 
different. English looms run somewhat faster than the looms 
in this country, but the number of looms tended per weaver 
is usually much less than here. This is in marked contrast to 
the woolen industry, where the number of looms tended is 
about the same in the two countries. In the case of plain looms 
(not automatic) the English weaver seldom tends more than 
4 looms, while in this country a weaver rarely tends less than 
6, and more frequently 8, or even 12, if equipped with ''warp- 
stop motions." Furthermore, English manufacturers make 
little use of automatic looms. . . . Where automatic looms can 



238 SOME FINDINGS ON COTTON MANUFACTURES 

be used a single weaver commonly tends 20 looms, and some- 
times as many as 28. The result is that whereas the output 
per spinner per hour in England is probably as great or 
greater than in this country, the output per weaver per hour 
is, upon a large class of plain goods, less, and in the case 
where automatic looms are used in this country and plain 
looms in England it is very much less. 

The foregoing statements apply to a comparison of plain 
looms in the two countries or of plain looms in England with 
automatic looms here. In the case of other methods of weav- 
ing such as dobby, Jacquard, box dobby, box Jacquard, lappet, 
etc., the difference in output is by no means so great. In the 
case of dobby looms (without automatic attachment) on some 
classes of fabric, the American weaver will tend 8 or more 
looms as against 4 in England ; but with the more complicated 
weaves the ratio seems to be nearer that of 6 to 4, and, in the 
case of certain fancy fabrics, where the number of looms 
tended is necessarily 4 or less, the output per weaver is about 
the same in both countries. 

As is well known, wages or earnings are not necessarily an 
index of the labor cost of any particular process of manufac- 
ture. The labor cost per yard depends on the relation between 
wages and output. An extreme illustration can be shown by 
figures secured by the Board in Japan. It is true that the 
wages of spinners and weavers per day in that country are 
very low, but the number of operatives employed to secure a 
given output is much greater than in this country. In 
the case of spinning, the lower wages paid are not offset by 
the larger number of persons employed, and consequently the 
amount paid to spinners per pound of yarn is materially less 
than in this country. On the other hand, Japanese weavers 
tend only one or two looms, and the lower output per weaver 
under existing conditions makes the amount paid the 
weaver per yard of cloth about 80 per cent, of the amount paid 
in this country where plain looms are used in this country; 
while compared with the use of automatic looms, the amount 



SOME FINDINGS ON COTTON MANUFACTURES 239 

paid the weaver per yard of cloth is greater than in this 
country. 

It must be further noted, however, that the cost of weaving 
is not merely a (luestiou of what the weaver receives per yard. 
The ratio of other labor to weaver's labor varies greatly from 
mill to mill and no general statement can be made regarding 
it. The cost of this other labor, such as foremen, slashers, 
warpers, drawers-in, loom fixers, is not reduced by the fact 
that the weaver tends a large number of looms. Conse- 
quently the total labor cost of weaving is not reduced in pro- 
portion to the reduction of the actual weaver's rate per yard, 
by the fact that a larger number of looms is tended by one 
operative. 

Keeping the above facts in mind it may be stated that, in the 
case of a large variety of plain goods, the labor cost of turn- 
ing yarn into cloth in the United States is not greater and in 
some cases is lower, than in England. For cloths woven 
on automatic looms, this is especially the case ; but on certain 
classes of fabrics the same holds true for plain looms due to 
the greater number of looms per weaver in this country. 
This does not necessarily indicate any individual superiority 
on the part of the American weaver. It is a matter of dif- 
ference in industrial policy, whether determined by the manu- 
facturer or the laborer, and it explains the difference in the 
methods of production which prevail at the present time. 
Where the automatic loom is now used in England a weaver 
frequently tends 20 looms, as is commonly done in the United 
States. 

In the case of finer goods, however, especially figured goods 
with complicated weaves, the cost of weaving is higher here 
than in England. This is due largely to the fact that the 
difference in the number of the looms tended per weaver is 
less than in the case of plain goods. On a large part of these 
fancy goods (those requiring more than one kind of filling) 
the automatic loom cannot be used. Even disregarding the 
question of automatic looms, the difference in the number of 



240 SOME FINDINGS ON COTTON MANUFACTURES 

looms tended per weaver on such fabrics is less than in the 
case of plain cloths. Consequently the comparatively small 
difference in output per weaver does not offset the higher 
wages paid in this country. 

Figures are presented in the report showing that although 
labor costs in the cotton industry are in many cases lower in 
the United States than in England, yet the actual hourly earn- 
ings in this country are, in most of the principal occupations, 
much greater. 

The conclusion that under present methods of production 
on many plain fabrics the cost of production is not greater in 
this country is also borne out by a comparison of English and 
American mill prices. A comparison of such prices on a 
large variety of these fabrics in England and the United 
States for the date of July 1, 1911, shows that in the case of 
plain goods the American price at the mill was in no case 
much above the English mill price, while in the majority of 
cases it was lower. It should be noted, however, that Amer- 
ican prices of this date, relative to the price of cotton, were 
somewhat lower than normal. The English prices are the 
regular quotations for the home market, and are not neces- 
sarily the prices for export and for neutral markets. In the 
case of fancy goods, however, where the looms tended are 
necessarily less, the American mill prices were in most cases 
higher than the English. 

The subject of prices is referred to below, but the fact that 
in the case of a number of leading fabrics the American man- 
ufacturer is selling at less than is the English manufacturer 
is corroborative of the statement that plain goods can be man- 
ufactured as cheaply in this country as in England. The 
report also gives information as to the ability of the American 
manufacturer to compete in neutral markets on goods of this 
kind. 

Cost of finishing. Finishing includes the processes of 
bleaching, printing, dyeing, mercerizing, etc. It is the gen- 
eral rule in England that the linishing of cotton fabrics is 



SOxME FINDINGS ON COTTON MANUFACTURES 241 

carried on in establishments separate and distinct from the 
weaving mills. This is also true in large measure in the 
United States. Since the converter or the weaving manufac- 
turer must pay the actual commission charges, a comparison 
of these finishing charges in England and the United States is 
adequate to show the relative cost of finishing in the two 
countries. 

A comparison of sixty specific samples for which finishing 
data were obtained shows that in most cases the differences 
between the charges in the two countries were slight, but that 
the American charges were slightly lower on most of the 
samples. 

Duties in relation to costs of weaving and finishing. . . . 
In nearly all cases the duty is more than 80 per cent, of the 
total American cost of conversion, and in a majority of cases 
it more than equals the entire conversion cost in this country. 
There are goods in which the ratio of manufacturing cost to 
the total cost (which includes the value of the material used) 
is small, and the actual ad valorem rates of duty — that is, the 
duties on the selling price of the finished fabric — range from 
20 per cent, to 45 per cent., with only four cases in which the 
duty is over 50 per cent. 

The above-mentioned list, as stated, includes only standard 
goods of simple construction (plain, twill, or sateen). A 
further comparison is made on 100 selected samples, covering 
a wide range of fabrics, as sold at retail. It is impracticable 
to tlraw any general average from these samples, but the facts 
for each one are set forth in the report. In general, it may 
be said that the ratio of duty to domestic cost diminishes as 
the character of the weave becomes more complicated and 
the number of looms tended per operative diminishes. 

These figures show a large number of costs in which the 
duty per square yard on the cloth unfinished (in the gray) 
is more than equal to the total conversion cost. ... In the 
greater number of cases the duties are greater than the total 
domestic cost of spinning and weaving. 

16 



242 SOME FINDINGS ON COTTON MANUFACTURES 

These same figures, taken with others presented in the re- 
port, show that the additional duties imposed on finishing 
processes bear little relation to the increased costs of these 
■processes. ... In the majority of cases, so far as the actual 
samples are concerned, for which cost figures were secured, 
the increase in duty is in excess of the total actual increase 
in cost, due to the finishing processes. . . . 

American retail prices. As already stated, many standard 
fabrics of simple construction are sold by American manu- 
facturers at a price as low as or lower than that of the English 
manufacturer. On the other hand, the English mill price of 
finer fabrics is in most cases lower than in this country; but 
it is only in the case of very few fancy specials that the Amer- 
ican mill price is greater than the English mill price by any- 
thing like the full amount of the present duty. It does not 
follow, however, that the American consumer gets his goods 
at the same price as the English consumer. One of the most 
interesting results of the investigation is to be found in the 
facts included in the report regarding the different methods 
of distribution in the two countries and the greater margin 
which exists between the price at which the manufacturer 
sells his goods and the price at which the consumer buys 
them in this country as compared with similar prices in Eng- 
land. The relation of the tariff to the prices paid by con- 
sumers can only be understood by fully comprehending the 
significance in American trade of the principle of "set prices." 
This principle is fully explained in the report, and many 
figures are given to show mill price, converter's price, job- 
ber's price, and retail price. 

The most common retail prices for different kinds of cotton 
cloth are 5, iy2, SVs, 10, 12y2, 15, 19, 25, 29, 35, and 50 cents 
a yard. These prices in turn fix the prices which the jobber 
can charge the retail merchant in order to bring the price of 
the fabric inside a given "set price" to the consumer, and 
these in their turn determine the prices which the jobber can 
afford to pay the manufacturer. The result is that under the 



SOME FINDINGS ON COTTON MANUFACTURES 243 

existing system of distribution the effect of any change in 
cost of production or in mill price cannot be determined ex- 
cept in relation to the "set price" of the retail trade. In 
some cases a reduction of one cent a yard in the mill price 
might be just enough to enable the jobber to sell at a price 
which would bring the goods within a lower retail class, 
thereby possibly saving as much as 6 cents a yard to the con- 
sumer. In another case a reduction in price of 3 or 4 cents 
a yard might not be sufficient to bring the cloth into the lower 
class, and in this case the whole reduction in mill price would 
go to the jobber or retailer, or both, while the consumer would 
pay the same price as before. 

It may be said in general that goods which are sold at the 
mill at from 8 to 9 cents reach the consumer commonly at 15 
cents per yard. 

When the mill price is 10 cents per yard, the fabric is 
thrown into a different classification and will reach the con- 
sumer at 19 cents. An increase of the mill price from 10 to 
111/^ cents would probably not affect the price to the consumer. 
When, however, the mill price goes to 12 cents, the consumer 
will pay 25 cents. A further increase in the mill price of 
2 cents in this case would not change the price to the consumer. 

With a mill price of 14 cents the consumer would still pay 
25 cents retail. Where the mill price is, however, 15 cents, 
the cloth enters another classification and probably reaches 
the consumer at 29 or 35 cents. It will be seen, then, that an 
increase of 2 cents, from 12 cents to 14 cents, does not affect 
the 25-cent retail price, while an increase of 1 cent, from 141/2 
cents to 1514 cents, may increase the price to the consumer 
by 10 cents. 

The same facts are brought out clearly by a study of the 
course of mill prices, jobber's prices, and retail prices of 
the same fabric over a period of years. A good many exam- 
ples of this are shown in the report. To illustrate by a cer- 
tain sample quilt: This was sold by the mill in 1908 for 621/^ 
cents and reached the consumer at $1. In 1910 the mill price 



244 SOME FINDINGS ON COTTON MANUFACTURES 

went up to 75 cents, an increase of I214 cents, which increased 
the retail price paid by the consumer to $1.50. 

Another quilt of a little lower grade sold in the earlier 
period at the mill for 581/9 cents; jobber's price, 70 cents; 
retail price $1. In 1910 the same quilt was selling for 67l^ 
cents at the mill; jobber's price 75 cents; retail price, $1. In 
the case of the first quilt an increase in the mill price of 121^^ 
cents increased the price to the consumer by 50 cents, while 
in the case of the other quilt an increase of 9 cents at the mill, 
in the same year, did not increase the retail price at all. The 
reason, of course, was that, the second quilt being of a little 
lower value, the increase did not quite bring it out of the $1 
class. 

These facts, besides being of interest as showing the rela- 
tion of the consumer to the producer in this country, are 
of importance in considering the effect of tariff changes. 
Assuming that the method of distribution remains the same, 
it would appear that the same rule would hold, whether the 
jobber should buy his goods of the domestic or the foreign 
manufacturer. We have seen that a slight reduction in the 
price the jobber pays to the producer might mean a large 
reduction in the price to the consumer. Conversely, a con- 
siderable reduction in the mill price might have no effect on 
Avhat the consumer must pay. For exactly the same reasons, 
on the one hand, a slight reduction in duty might mean a 
much more than proportional reduction in price to the con- 
sumer, whereas, on the other hand, a very material reduction 
in the duty might have no effect at all in decreasing the retail 
price. 

This method of distribution is much more firmly fixed in 
the United States than in other countries. This fact, com- 
bined with the lower margin abroad between the mill price 
and jobber's price and the lower margin between the jobber's 
price and the retailer's price, as compared with this country, 
brings about the result that goods which are manufactured 
at the same cost in England and the United States and sold 



SOME FINDIXCIS ON COTTON MANUFACTURES 245 

at the same price in both countries at the mill nevertheless 
reach the consumer in the two countries at quite different 
prices. 

English retail prices. A few comparisons may be given 
here to show the wider margin between manufacturer's prices 
and retailer's prices in this country as compared with Eng- 
land. Thus one fabric which sells at the mill in the United 
States at Sy, cents a yard will be jobbed at 11 cents and sold 
at retail at 15 cents. The identical fabric in England would 
sell at the mill for the same price — 8^/^ cents — be jobbed at 
9.75 cents and retail at 131/^ cents. 

A fabric selling at the mill in the United States at 10 1/^ 
cents would be jobbed at 121/^ cents and sold to the consumer 
at 19 cents, or possibly 25 cents. The same fabric selling 
at the mill in England at a price identical with that paid at 
the American mill would be jobbed at III/2 cents and would 
reach the consumer at 15 cents. 

A fabric selling at the mill in the United States at 12 cents 
would be jobbed at 16i/^ cents and reach the consumer at 25 
cents. The same fabric with the same mill price in England 
would be jobbed at 14 cents and reach the consumer at 19 
cents. In the case of these particular samples it will be seen 
that the price received by the manufacturer is the same in both 
countries, but that the American consumer pays a decidedly 
higher price than the British consumer. 

General conclusions. In conclusion it may be stated that 
the foreign cost of spinning is less than in the United States, 
as shown by the figures above. The same holds true for 
weaving fancy fabrics, on which the number of looms to the 
weaver in this country is not much greater than the number of 
looms to the weaver abroad. On account of the different mill 
methods in this country, the domestic labor cost of weaving 
on a large variety of plain fabrics of wide consumption is 
below the foreign cost. Except in the case of a few special 
fabrics, and in the case of various manufactured articles, 
some of which are produced in this country to a very slight 



246 SOME FINDINGS ON COTTON MANUFACTURES 

extent, the American industry practically supplies the whole 
consumption. The imports of yarn in 1910 were less than 
one-half of 1 per cent, of the home production in pounds. 
The imports of cotton cloth were less than 2 per cent, of the 
home production in value. Mill prices are in many eases as 
low in this country as in the world 's markets. Where higher, 
as in the ease of the finer classes of products, they are rarely 
higher by anything like the whole amount of the duty. The 
effect of the present tariff, then, in most cases is not so much 
to add the duty to the domestic manufacturer's price as to 
secure him the American market; and, in the case of most 
articles of widest consumption, to prevent the competition 
of the foreign manufacturer, either in normal or abnormal 
times. On account of more costly methods of distribution in 
this country from producer to consumer, the latter pays a 
decidedly higher retail price than the European consumer, 
even in the ease of fabrics on which the cost of production and 
the mill price are as low here as there. 



COST OF PRODUCTION IN THE STEEL INDUSTRY 

[Herbert Kxox Smith, the Commissioner of Corporations, submitted 
to tJie President, Jan. 22, 1912, a report on the cost of production in 
the steel industry. Accompanying the report was a letter of submittal 
■which in effect ia a summary of tlie results of the inquiry. This 
letter is here reproduced entire to show not only the facts and con- 
clusions but the form in which such matters are presented to the 
President. (Report on the Steel Industry, Part II, cost of production, 
preliminary report, pp. xiii-xviii.) ] 

Department of Commerce and Labor, 
Bureau of Corporations, 
Washington, January 22, 1912. 

Sir : I have the honor to submit a report on the cost of pro- 
duction of iron and steel. 

The cost of steel making is a basic industrial fact, which 
bears on tariff legislation, prices and profits in a great indus- 
try, and the concentrated control of a great natural resource. 

The Bureau has used the actual records of companies cov- 
ering, roughly, two-thirds of the country's production of iron 
and steel for 1902 to 1906. These data are most complete. 
More limited figures for 1902 to 1910 make it clear that these 
five-year figures substantially represent present conditions 
also. 

The costs of the United States Steel Corporation for the 
chief materials and products are also given for 1910. 

During 1902 to 1906 the steel industry was based on Lake 
ore, but very low costs for Southern pig iron appear in the 
report. 

"Book costs" and "intercompany" profits. Many of 
these companies were highly "integrated" ; that is, they linked 
up under one control, through various subsidiaries, ore mines, 

247 



248 COST OF PRODUCTION IN THE STEEL INDUSTRY 

blast furnaces, steel works, etc. Their ' ' cost sheets, ' ' however, 
did not correspond with this integration. The costs of each 
subsidiary were shown as though it were independent, and 
included profits paid to other subsidiaries. To illustrate, one 
subsidiary of a combination, operating blast furnaces, would 
pay to another subsidiary, which mined ore, a price for ore 
that included a profit to the ore company. This price would, 
however, be entered by the furnace company as a part of its 
costs. That is, they were "book costs," and they included 
considerable profits really received by the same interests. 

These intermediate profits are very important. For ex- 
ample, the average "book cost" of Bessemer pig iron over 
the five-year period was $13.89 per ton. "Transfer" profits 
were $1.79, leaving a net cost of $12.10. (Gross tons are used 
throughout, except where otherwise specified.) 

The bureau deducted these intermediate "transfer" profits 
for all the important simpler products. The resulting "re- 
vised cost" must, however, be handled with great caution. 
The margin between this revised cost and the selling price 
is, of course, much larger than the margin over the "book 
cost"; but, on the other hand, that larger margin must cover 
all the stages of production, and therefore a much larger in- 
vestment. The profit above the "book cost" of a subsidiary 
is to be applied simply to the investment of that company. 
On the other hand, the profit above the revised cost of an 
integrated company, carrying through many stages of produc- 
tion, must he set against that entire investment. 

The Bureau has presented the cost data, combined for a 
number of companies, in two forms for each product: (1) It 
gives first the average book cost thereof; (2) it has then de- 
ducted the average intermediate "transfer" profits, thus show- 
ing the revised cost. 

One of these companies, the United States Steel Corpora- 
tion (hereafter referred to as the Steel Corporation), has also 
large intercompany profits on transportation, chiefly in carry- 
ing its ore on its own railroads. In the Steel Corporation's 



COST OF PRODUCTION IN THE STEEL INDUSTRY 249 

costs, wliich are given later, these ''transportation" profits 
are also deducted; but not here. Only the Steel Corporation 
has such profits to any considerable degree, and to deduct 
them in the present combined figures would give an average 
for all companies which would be true neither for the Steel 
Corporation nor for the other concerns. 

Cumulative effect of cost of ore. A fundamental fact 
is the cost and profit on ore. Ore is the raw material for 
iron and steel, and its costs have an underlying and cumulative 
effect through all stages of production and ultimately on the 
prices of the finished product. The report shows that there 
were high intermediate profits on ore going into pig iron, 
with marked cumulative effect on all finished products. 

Cost of steel rails. It is impossible to give here the de- 
tailed cost figures of the full report. Simply the general 
principles are stated, the nature of the information, and its 
more striking relations to the public interest. An illuminating 
view of costs in general, however, can be had from an outline 
of steel-rail production and costs. 

Starting with the chief raw materials, ore and coke, the 
"book cost" of ore for the five-year period was $2.64. The 
only "transfer" profit in the cost of ore itself was an in- 
tercompany royalty of $0.02 per ton, leaving a net average 
cost of ore of $2.62. 

For Connellsville coke, the principal kind used, the cost 
was $1.43 (net ton), with no intermediate profits. 

Passing now to the next step, Bessemer pig iron. Inter- 
mediate profits in ore and in coke, as they go into pig iron, 
are large. Furthermore, these costs, profits, and freights to 
the furnace are multiplied because it takes about 1.8 tons of 
Bessemer ore and over 1 net ton of coke for 1 ton of pig 
iron. The average book cost of the ore for 1 ton of pig iron 
was $7.36; coke, $3.81; and limestone, $0.43. The so-called 
"cost above materials," necessary for converting that ore into 
pig iron, was : Labor, $0.73 ; other operating cost, $0.80 ; and 
depreciation and general expense, $0.76. The total makes a 



250 COST OP PRODUCTION IN THE STEEL INDUSTRY 

book cost of pig iron of $13.89. Taking out now the transfer 
profit, $1,79, there is left a net cost of $12.10. 

Advancing to Bessemer rail ingots, there appears a book cost 
of $17.59. All the preceding intermediate profits, however, 
have been carried forward in the book cost of the raw ma- 
terial, pig iron. Thus, the total "transfer" profits for ingots 
were $1.84, leaving a net ingot cost of $15,75. 

For heavy Bessemer rails, finally, the book cost was $21.27. 
This is based on the book cost of ingots. The final transfer 
profits were $2.47. Deducting these leaves $18,80 as the re- 
vised cost. The total difference is thus a very considerable 
amount. About one-fourth of this revised cost was for labor 
in all stages of production, as appearing directly in the cost 
sheets. 

In the text, the general principles and form of presentation 
for other products are the same as for rails. 

Rail investment. The relation of these integration profits 
to entire integration investment may be roughly illustrated 
here. The price of Bessemer steel rails has been fixed for over 
10 years at about $28 a ton. The cost, eliminating transfer 
(but not transportation) profits, is $18.80 per ton. This 
leaves a margin of $9.20. The total mining and manufactur- 
ing investment (excluding transportation properties) actually 
behind this steel-rail production, from ore to rails, is from $80 
to $55 a ton. On this investment the margin, $9.20, represents 
a profit of from about 11 to 17 per cent. The margin between 
revised cost and price must in this way be distributed over 
the entire investment thus attributable to the product in ques- 
tion. 

Large and small companies; billets. A significant fact is 
the difference between the costs of large companies, which are 
well integrated, and small companies, which are not. A good 
example here is Bessemer billets. In this product interme- 
diate profits have also accumulated through ore, coke, pig 
iron, etc. For the group of large companies the book cost of 
billets was $19.89; for small companies, $22.54. The dif- 



COST OF TRODUCTION IN THE STEEL INDUSTRY 251 

ferenee was $2.65, But now taking out transfer profits, the 
cost for large companies was $17.56 and for small companies 
$21.69, a difference of $4.13 between the two. The large 
companies represented here included the Steel Corporation, 
the Republic, Lackawanna, and Jones & Laughlin steel com- 
panies. 

Part of this difference in favor of large companies must, of 
course, cover a greater investment, due to higher integration ; 
part is due to superior efficiency resulting from such integra- 
tion; but part represents also monopolistic control, especially 
in ore. 

In so far as this difference means a larger per cent, of re- 
turn on each dollar of investment, it is a real difference in 
industrial position between the two groups. This difference 
must be considered in any public action affecting both classes 
of companies. 

Other products. The Bureau has not attempted to revise 
these costs beyond the simpler finished products. As the 
elaboration increased, the difficulties of revision increased dis- 
proportionately. The chief intermediate profits, however, are 
in the raw materials, ore and coke, and certainly largely in- 
cluded in the pig iron. Accordingly, they are necessarily car- 
ried forward into all finished steel products. 

A broad survey of "book costs" of steel products can, 
however, be obtained from the following table. These costs 
have not been revised, and therefore include considerable trans- 
fer profits. 

UNBEVISED BOOK COSTS. 

Products. Total cost. 

Open-hearth billets $20.87 

Universal plates 21.82 

Structural 26.52 

Merchant bars 28.12 

Wire rods 27 21 

Bright coarse wire (net tons) 29.12 

Black sheets (net tons) 39. .37 

Tin and terne plate 71.23 



252 COST OF PRODUCTION IN THE STEEL INDUSTRY 

Integration costs of United States Steel Corporation. For 

the foregoing combined costs of a number of concerns the 
Bureau computed the revised costs. But for the Steel Cor- 
poration the Bureau received, from the Corporation itself, its 
book costs of various products and the record which it kept 
of its own intermediate profits on such products for the year 
1910. 

Its intermediate profits are the highest and its net costs are 
the lowest. This fact, and its unique character and domina- 
ting position, make the costs of this Corporation a matter 
of public importance. 

The Steel Corporation is by far the most highly integrated 
concern in the industry. It not only makes pig iron, steel, 
and most of the various rolled products, besides some more 
elaborated articles, but it also mines its own ore and coal, 
produces its own coke, and does all this more completely than 
any competitor. Finally, it links up its ore mines with its 
furnaces by its own rail and vessel lines and dock companies. 
In its control of ore railroads, both north and south of the 
Lakes, it stands in a class by itself. For this reason its "trans- 
portation" profits, as well as transfer profits, are here de- 
ducted to show its net or "integration" costs. 

The results of this integration and of the Corporation's 
position in the industry are shown by its total integration 
costs, as follows: 

Integration cost of ore, when mined and transported to lower 
Lake ports, $2.40. The book cost was $2.88. 

Bessemer pig iron, integration cost, $10.21. The book cost 
was $14.39. Included in both cases is an item of general 
expense and depreciation — "additional costs" — approximated 
at $0.50. 

Bessemer rail ingots, integration cost, $12.77. Book cost, 
$17.45. (Including in both cases "additional costs" ap- 
proximated at $0.60.) 

Heavy standard Bessemer rails, integration cost, $16.67. 
Book cost, $21.53. (Including in both cases "additional 



COST OF PRODUCTION IN THE STEEL INDUSTRY 253 

costs" approximated at $1.30.) The difference here, $4.86, 
is about equally divided between transportation profit and 
transfer profit. This division for rails gives a general idea of 
the importance of transportation profits. 

These integration costs are the lowest in the domestic in- 
dustry. They can not, however, be compared with the com- 
bined figures previously given for 1902 to 1906, because of 
the difference in the kinds of profit eliminated, the difference 
in dates, and the difference in companies. 

The intermediate profits which were eliminated to reach 
these low costs are the largest per ton in the industry. But 
they must be set against the most extensive investment per 
ton of product. The margin between these costs and selling 
prices must cover a return on all the agencies of mining, 
transportation, and manufacture, from the ore and coal to 
the finished product, 

Profits on railroads and ore reserves. The most significant 
profits were those on ore and on railroad transportation. In 
so far as the Steel Corporation enjoys monopolistic power, 
it lies chiefly in these two factors. 

The Bureau's revisions indicate a rate of profit of about 
10 per cent, (for the period 1902 to 1906) on the average 
total investment of the Steel Corporation in ore (as estimated 
by the Bureau in Part I of this report, already issued). 
Whether such a rate of return is reasonable in itself is not 
of first importance. The essential fact is that 10 per cent, 
profit is earned on the whole ore holding. Thus, while earn- 
ing 10 per cent., the Steel Corporation can also carry a vast 
ore reserve far in excess of its present requirements and so 
large as to have distinctly monopolistic features, can exercise 
on the entire industry the undefined but real power that such 
concentration of the ultimate resource must give, and can 
assure itself of the certain increment of value that will in- 
evitably occur with the diminishing of our available ore supply 
so long as the existing conditions of concentration are allowed 
to continue. 



254 COST OF PRODUCTION IN THE STEEL INDUSTRY 

The ore rates on its two ore railroads have been excessive. 
In so far as they exceed a reasonable return, they not only 
benefit the Corporation by a high profit on the ore of other 
shippers, but correspondingly handicap the business of such 
competitors, who must ship over these roads. These rates 
were reduced in November, 1911. 

Such control of public agencies of transportation by an in- 
dustrial corporation carries with it just such possibilities of 
abuse, and raises the question whether the public interest in 
this industry does not require a segregation of the ore railroads 
of the Steel Corporation. 

Very respectfully, 

Herbert Knox Smith, 
Commissioner of Corporations. 

The President. 



THE STANDARD OIL TRUST 

[The Standard Oil Company was one of the first corporations to 
organize in the form of a "trust" in the legal sense. The great wealth 
of its chief stockholders and its large measure of monopolistic control 
have made it, in the popular mind, the typical "trust." May 2, 1906, 
the Commissioner of Corporations issued a report on the Transporta- 
tion of Petroleum, and May 20, 1907, a report of nearly 1400 pages on 
the Petroleum Industry, most of it relating to the Standard Oil Com- 
pany. A few comparatively brief extracts from the later report are 
here given to illustrate the evidence as to the sources of this company's 
monopoly power. A number of uncomplimentary adjectives have been 
omitted in order that they may not distract the student's attention 
from the statements of facts. The first part of the selection is from 
Part I, pp. xv-xx of the Report.] 

Its dominant position. In 1904 the Standard Oil Company 
and affiliated concerns refined over 84 per cent, of the crude 
oil run through refineries; produced more than 86 per cent, 
of the country's total output of illuminating oil; maintained 
a similar proportion of the export trade in illuminating oil; 
transported through pipe lines nearly nine-tenths of the crude 
oil of the older fields and 98 per cent, of the crude of the 
mid-continent, or Kansas-Territory field; secured over 88 per 
cent, of the sales of illuminating oil to retail dealers through- 
out the country, and obtained in certain large sections as high 
as 99 per cent, of such sales. It also controlled practically 
similar proportions of the production and marketing of gaso- 
line and lubricating oil. While handling a much smaller pro- 
portion of the oil, both crude and refined, in the Gulf and 
California fields, this fact has little significance as to its con- 
trol of illuminating oil, gasoline, and lubricating oil, for the 
reason that the crude of those particular fields produces a 

255 



256 THE STANDARD OIL TRUST 

comparatively small per cent, of these products and is used 
mostly for fuel. 

The Standard has as its only competitors in the refining 
business about seventy-five small refineries, whose total con- 
sumption of crude oil is less than that of a single one of 
the Standard, to wit, the Bayonne refinery, and less than one- 
fifth of the Standard's total consumption. Over fifteen of 
these competitors are dependent for their supply of crude 
oil upon the Standard's pipe lines, and are so restricted by 
this dependence as to be capable of little effective competition 
or growth. In the pipe-line business of the eastern and mid- 
continent fields it has up to the present but one compet- 
itor of any significance — the Pure Oil Company — and that 
competitor's pipe-line business is not more than one-twentieth 
of that of the Standard. , . . 

History of form of organization. Starting with the 
partnership of Rockefeller, Andrews & Flagler, formed in 
1867, in 1870 these interests took the corporate form of the 
Standard Oil Company of Ohio, with a capitalization of $1,- 
000,000. At that time they controlled not over 10 per cent, 
of the refining business of the country. Within ten years 
from that date the process of combination under these in- 
terests had been so rapid that they admittedly controlled from 
90 to 95 per cent, of this branch of the oil industry, and their 
control of the pipe-line business had increased with equal 
rapidity. This commanding position having been gained, in 
1882 they concentrated their holdings under the Standard 
Oil Trust, which included the entire stock of fourteen com- 
panies and a majority interest in twenty-six additional con- 
cerns. The capitalization of the trust was $70,000,000 and 
the appraised valuation of its property over $55,000,000, 
Nine individuals, acting as trustees of the trust, owned to- 
gether on that date more than $46,000,000 out of the $70,- 
000,000 of the trust certificates issued. . . . 

In 1892, as a result of a legal attack on this form of 
organization, the trustees announced that the trust would be 



THE STANDARD OIL TRUST 257 

dissolved, and a process of so-called dissolution took place. 
This in no way, however, affected the original control of the 
aforesaid individuals over the entire concern, because the 
stocks of each of the various subsidiary corporations were 
not returned to their original holders, but were allotted to 
the holders of trust certificates on a pro rata basis, with the 
result that the trustees, who had previously held the majority 
of the trust certificates, now held a majority interest in each, 
one of the constituent companies. 

In 1898 contempt proceedings were started against the 
Standard Oil Company of Ohio on the ground that it had not 
withdrawn from the trust. Thereupon, pending the decision, 
these interests selected the Standard Oil Company of New 
Jersey as a holding corporation for the constituent Standard 
companies, and increased its common stock to $100,000,000 for 
that purpose. This company then gave its own stock in ex- 
change for the stocks of such companies. This change, like 
the previous one of 1892, as was its obvious purpose, left the 
monopoly power of the Standard capitalists undisturbed. The 
same group of men who had been holders of a majority of 
the trust certificates, then of a majority of the stocks in the 
subsidiary companies, now became holders of a majority of 
the stock of the controlling New Jersey company. 

The outstanding stock of this company is about $98,000,- 
000. It controls at least 10 refining companies, 4 lubricating- 
oil companies, 3 crude-oil producing companies, 13 pipe-line 
and other transportation companies, 6 marketing companies, 
16 natural-gas companies, and 15 foreign concerns, besides 
having close afSliations with a considerable number of other 
concerns. . . . 

Relations to railways. It is of the utmost importance to 
indicate clearly those fundamental facts that form the basis 
of the Standard's power. The monopoly of this concern has 
never rested on ownership of the source of supply of crude 
oil. Not over one-sixth of the total production of crude in 
the country in 1905 came from wells owned by the Standard 



258 THE STANDARD OIL TRUST 

interests. It cannot be too strongly emphasized that its 
growth and present power rests primarily on the control of 
transportation facilities in one form or another. Additional 
means of domination have been found in local price discrim- 
ination and other unfair competitive methods in the sale of 
products, as well as in the elimination of the jobber; but 
throughout its entire history the factor of transportation has 
been the keystone of its success. 

The . . . railway discriminations obtained by the Standard 
in its earlier years as against its competitors did more than 
all other causes together to establish it in its controlling posi- 
tion. Later, when the rebate, per se (that is, the actual, 
physical repayment of part of the freight rate), was sub- 
stantially abandoned, the Standard was able, by compelling 
the cooperation of the railroads, to establish in place thereof 
a system of secret or open discriminations in rates in its own 
favor, covering almost the entire country and of such a nature 
that throughout large sections it could sell and make a profit 
on oil at prices which left no profit for competitors. The 
existence of many such important railway discriminations was 
set forth in full in the report of the Commissioner on the 
Transportation of Petroleum, in May, 1906; and as a result of 
that report all the secret rates which had been discovered 
were discontinued, and the discriminations in open rates have 
largely been abandoned. 

Pipe-line system. This system of railway discriminations 
allowed the Standard to control substantially that link in 
the business that lies between the refinery and the consumer. 
By means of its great pipe-line system it also controls the 
gap between the producer of oil and the refinery. It has 
now a pipe-line system of more than 40,000 miles, covering 
completely the Appalachian, Lima-Indiana, Illinois, and mid- 
continent fields, with great trunk lines running to the sea- 
board and to the great markets and distributing centers where 
its largest refineries are located. All attempts on the part 
erf others to construct competing pipe lines have been . . , 



THE STANDARD OIL TRUST 259 

opposed by the Standard, and usually with success. By 
means of . . . litigation and preempting of right of way, by 
the aid of railroads which refused rights of way across their 
lines and adjusted their rates so as to injure competing pipe 
lines, by paying local discriminating premiums for crude oil 
in the limited areas reached by rival lines, the Standard has 
been able to practically prevent the rise of any efficient com- 
petitor in the pipe-line business from the older fields to the 
Atlantic seaboard or has destroyed or absorbed rivals already 
established. 

Having thus established and maintained its monopoly of the 
pipe-line business, it has in substance refused to act as a com- 
mon carrier or to transport and deliver oil for independent 
producers or to independent refineries, and, where making any 
rates at all for such transportation, has made them at least 
as high as the railroad rate between the same points, although 
the cost of pipe-line transportation is very much less. 

The economy of pipe-line transportation as compared with 
that by rail is a vital consideration. A refiner wholly de- 
pendent on railroads for his crude supply cannot hope to 
become a factor of much importance in the industry. This 
imperative condition of rail-transportation costs has fixed 
the location of most independent refineries near the oil fields 
and has restricted most of their sales of the refined products 
to the comparatively small adjoining sections. On the other 
hand, the Standard 's comprehensive pipe-line system has given 
it the choice of strategic positions for its refineries near to 
the largest distributing and exporting centers of the coun- 
try. 

Conditions making price discrimination possible [Part II, 
pages 27-29]. The methods of marketing oil products lend 
themselves to this practice of price discrimination. Illumina- 
ting oil and gasoline — and the same is in less measure true of 
other petroleum products — are not to any large extent sold 
at central markets or through jobbing concerns independent 
of the refiner. The Standard Oil Company sells most of its 



260 THE STANDARD OIL TRUST 

illuminating oil and gasoline in the United States directly 
to retail dealers at their own towns. They are largely de- 
livered to retail dealers at their own stores by means of tank 
wagons. Consequently the prices of oil and gasoline are in 
general purely local prices. The retail dealer is ordinarily 
not familiar with prices charged in other towns or in central 
markets, but even if he were he could not take advantage 
of lower prices prevailing elsewhere to buy oil there and bring 
it into his own town. The cost of transporting oil in barrels, 
particularly in less than carload lots, is higher than in tank 
ears. Moreover, tank-wagon delivery is so much more con- 
venient than barrel delivery that the retail dealer is ordinarily 
unwilling to buy barrel oil even at a lower price. 

The Standard Oil Company has established the system of 
tank-wagon delivery in the larger towns in all parts of the 
United States and in a large proportion of the smaller towns 
in the more populous sections. ["Of the towns in which 
deliveries of oil by tank wagon were reported, such deliveries 
were made by the Standard Oil Company or some affiliated 
concern in 97.7 per cent." Part I, page 20,] The business 
of its competitors is largely confined to a limited area and to 
a limited number of towns within that area. In towns and 
sections where there is no competition the Standard can 
charge monopoly prices, and by reason of the high prices thus 
obtained it can afford to reduce prices in competitive areas 
and towns to a point which leaves no profit for the independ- 
ent concern. 

Independent concerns are compelled to confine their busi- 
ness to a limited area and usually to a limited number of places 
in such area, first, by reason of the fact, already stated, that 
delivery in barrels is either more expensive or less satisfactory 
than delivery by tank wagons ; and second, because the limited 
volume of their business does not permit them to establish tank- 
wagon delivery in many places, since, in order to reduce the 
cost of tank-wagon delivery to a reasonable amount per gallon, 
it is necessary that a concern should secure a considerable 



THE STANDARD OIL TRUST 261 

volume of business in each town it enters. Only a concern 
with enormous capital could afford to establish a marketing 
system in competition with that of the Standard throughout 
the entire country and thereby force the Standard, if it de- 
sired to cut prices, to sacrifice profit on its entire business. 

It • is clear from these considerations that the Standard 
has an enormous advantage over any of its competitors in the 
marketing of oil. By a vigilant policy of aggressive attacks 
on competitors competition is kept strictly localized and scat- 
tered, and thus easily controlled. The Standard can make 
huge profits on its total business while reducing the profits 
of its competitors to a small amount, or even forcing them to 
sell at a loss. 

Relation of dijfferences in prices to profits. The signif- 
icance of the extraordinary differences in prices charged by 
the Standard as among different sections of the country or 
different individual towns can be appreciated only in the light 
of the fact that a very small amount per gallon constitutes 
a fair margin of profit on the investment in the refining and 
marketing of illuminating oil and the other principal petrol- 
eum products. The average investment of Standard refining 
concerns per gallon of product annually is probably not to 
exceed 2i/2 cents, so that a return of 10 per cent, on the in- 
vestment in refining can be secured on the basis of a margin 
of profit of only about 2i/2 mills per gallon for all products 
combined. The investment of the Standard in facilities for 
marketing illuminating oil and gasoline, etc., averages about 
4 cents per gallon of product marketed annually. A return 
of 10 per cent, on the marketing investment can therefore 
be secured from a profit margm of only about 4 mills per 
gallon. 

A difference of about 7 mills per gallon in the price of illu- 
minating oil may, therefore, mean the difference between a 
profit of 10 per cent, on the investment in both refining and 
marketing and no profit at all. The actual differences in price 
between competitive and noncompetitive towns and areas, after 



262 THE STANDARD OIL TRUST 

making allowance for all possible differences in cost of pro- 
duction and marketing, often amount to several cents per gal- 
lon. These discriminations in price may mean, thus, the dif- 
ference between an enormous profit on investment and little 
or no profit or even a loss. The destructive effect of the prac- 
tice of price discrimination upon the business of independent 
concerns is thus obvious. 

Local discrimination [Part II, pages 32-33]. The diffi- 
culty in comparing average State prices arising from the un- 
certainty concerning the relative cost of manufacturing the 
oil sold in different States may be avoided by comparing only 
those States which are supplied from a single refinery or 
from a group of refineries having conditions so similar as to 
exclude the possibility of any material difference in cost. 

Thus, there are a large number of States and parts of States 
lying on or near the Atlantic seaboard and extending from 
Maine to Florida which are supplied with illuminating oil 
principally from a group of Standard refineries situated either 
at the seaboard (New York, Philadelphia, and Baltimore)' or 
in and near the Appalachian oil field (Buffalo and Olean, N. 
Y., Franklin and Pittsburg, Pa., and Parkersburg, W. Va.). 
The differences in the cost of producing illuminating oil at 
these different refineries are insignificant. Yet the average 
State prices in the territory supplied by them show a very 
wide range. In December, 1904, the average price in Dela- 
ware, freight deducted, was 7.7 cents. In Pennsylvania the 
average was also relatively low, 8.7 cents. On the other hand, 
in the State of New York, itself containing several Standard 
refineries, the average price was no less than 10 cents; in 
North Carolina and also in New Hampshire, 10.3 cents; in 
part of South Carolina supplied from these seaboard refineries, 
11.4 cents; in Florida, 12.8 cents, and in part of Georgia 
supplied from this source, 13 cents, or 5.3 cents higher than 
in Delaware. 

Again, there is a great group of States in the interior of 
the country, comprising almost the entire Mississippi Basin 



THE STANDARD OIL TRUST 2C3 

from the northern border to the Gulf of Mexico, which are 
supplied with illuminating oil chiefly from the Standard's re- 
tineries at Cleveland and Lima, Ohio, and Whiting, Ind. 
These three refineries use the same kind of crude oil, and the 
differences in cost among them are insignificant. Much the 
greater part of the area is, moreover, supplied from Whit- 
ing alone. Yet the prices ( freight deducted ) within the terri- 
tory supplied by them show a range from 8.5 cents for Ohio, 
where several independent refineries are situated, to 13.7 cents 
for that part of Arkansas which is supplied from Whiting. 
In North Dakota, South Dakota, Tennessee, Alabama, and 
Georgia, which are supplied largely from the same source, 
the prices range from 11 to 12 cents per gallon. 

Perhaps the most striking instance of sectional discrimina- 
tion which has appeared during recent years is on the Paeitic 
coast. In southern California there are a number of in- 
dependent refineries. The Standard carries oil from its great 
refinery near San Francisco, several hundred miles by water 
and rail, and sells it in southern California for much less 
than the price at San Francisco. The average price, freight 
deducted, for the southern part of California in December, 
1904, was 7.2 cents per gallon, while for the northern part of 
the State it averaged 12.4 cents per gallon. In Oregon, sup- 
plied from the same source the price averaged 15.3 cents per 
gallon, and in Washington, 15.7 cents. The price in Wash- 
ington and Oregon was thus more than twice as high as in 
southern California for the same oil. 

Differences in prices among large cities [Part II, pages 
34-35]. It is a striking fact that some of the largest cities 
have, during recent years, paid very high prices for illumina- 
ting oil. This is not because there is no independent oil sold 
in them, but because the Standard prefers to allow the inde- 
pendents to do a small volume of business rather than to cut 
prices against them. Thus, in December, 1904, the price at 
New York, which is at the very seat of the Standard's great- 
est refineries, was 10.5 cents per gallon, and at Boston, freight 



2G4 THE STANDARD OIL TRUST 

deducted, 10.8 cents per gallon. At Worcester, Mass., a much 
smaller city, the price was only 7.5 cents. The prices at Cin- 
cinnati and Cleveland were still lower, 6,4 cents and 7 cents, 
respectively. The differences in cost of producing and 
marketing the oil sold in the cites just mentioned is insignif- 
icant. The price at Augusta, Ga., was 8.2 cents, as compared 
with 10.9 cents at Atlanta, 12.1 cents at Charleston, and 12.5 
cents at Jacksonville. All these cities must have substantially 
similar costs. The price at Minneapolis and St. Paul was 
7.2 cents, as contrasted with 12.3 cents at San Francisco, 14.5 
cents at Seattle, 14.4 cents at Denver, and no less than 16.6 
cents at Butte. Only a small fraction of these differences is 
due to differences in costs. 

The evidence obtained from Standard concerns regarding 
marketing costs indicates that, as among most of the large 
cities, such differences cannot exceed one-half or three-fourths 
cent per gallon, and that the extreme difference between the 
lowest and the highest would not exceed 1 cent per gallon. 
The differences between Eastern and Western cities are per- 
haps in part due to higher cost of producing the illuminating 
oil sold in the latter, but this difference can scarcely exceed 
2 cents per gallon. 

The prices of gasoline show substantially as great differ- 
ences among States and sections as the prices of illuminating 
oil. 



WATER-POWER DEVELOPMENT IN THE 
UNITED STATES 

[A REPORT under the foregoing title was made by the Commissioner 
of Corporations (U. S. Bureau of Corporations) and published March 
14, 1912. Some extracts are here taken from the summary on pages 
1-34,] 

Physical facts involved. Prior to the discovery of 
electrical transmission of power over long distances, water- 
power could be utilized only at the power site. This limited 
its development in most cases to comparatively small units, 
and almost exclusively to manufacturing enterprises. The 
introduction of electric-power transmission not only provided 
a means of supplying distant manufacturing and domestic 
demands, but also opened up an entirely new power field, 
namely, the operation of street railways and lighting plants, 
and enormously increased the relative importance of water- 
power. Thus the development of water-power (based on in- 
stalled wheel capacity) for railway and lighting purposes 
increased from 487,000 horse-power in 1902 to 1,441,000 
horse-power in 1907 (the latest date for which statistics are 
available), or by nearly 200 per cent. In manufacturing in- 
dustries, where transmission by electricity is infrequent, water- 
power development during the period 1900-1905 increased by 
only 11 per cent. 

These comparisons suggest the remarkable influence that 
electrical transmission has had upon the development of water- 
power in recent years, and at the same time they indicate the 
peculiarly close natural relationship between the water-power 
industry and public-service enterprises. 

This growing importance of the "commercial" use of water- 
power, its comparatively recent development, and the con- 

265 



266 WATER-POWER DEVELOPMENT 

sequent lack of an appreciation of its real significance, together 
with the established connection between commercial water- 
power enterprises and public utilities, all demand that the 
public be furnished with accurate and comprehensive infor- 
mation on this subject. This report is an attempt to meet 
that demand. . . . 

Estimates of potential power. The United States Geolog- 
ical Survey estimated the "minimum potential" water- 
power of the country at 36,916,250 horse-power, and the 
"assumed maximum" at 66,518,500 horse-power, both figures 
excluding storage possibilities. "Storage," as used in this 
report, means the extensive storage of water in large reservoirs 
so as to regulate the stream flow over considerable periods. 
It does not refer to the small accumulation of water in a power 
dam; this is referred to as "pondage." These Survey esti- 
mates of potential power were arrived at by multiplying the 
flow of the stream into 90 per cent, of the fall. . . . 

Revision of Survey figures. The Survey estimates require 
some revision. . . . Eeducing the estimates of the Survey ac- 
cordingly, the totals become 26,736,000 horse-power and 51,- 
398,000 horse-power, minimum and maximum, respectively. 
... As noted above, no allowance for storage has been made 
in these Survey estimates. Various estimates including stor- 
age have been made, but most of them are exceedingly ex- 
travagant, and none of them is based upon sufficiently reliable 
data to warrant unquestioned acceptance. . . . 

The water-power centers of the country are the Pacific Coast 
and intermountain States, the New England States and New 
York, the Great Lakes Eegion, and the States entered by the 
Southern Appalachian Range, Approximately 43 per cent, 
of the total estimated minimum power of the country is found 
in California, Oregon, and Washington. Adding to this the 
power in Montana, Wyoming, and Idaho gives 60 per cent, 
of the total minimum power in these six States. 

Power demand. The total installed stationary prime- 
moving power of all kinds (steam, gas, and water) in the 



WATER-rOWER DEVELOPMENT 267 

United States iu 1905-1907 (the latest date for which com- 
plete statistics are available) was approximately 23,000,000 
horse-power. Of this, 18,858,000 horse-power or 82 per 
cent, of the total, was generated from steam ; 3,423,000 horse- 
power, or 15 per cent., was developed from water; while 
631,000 horse-power or about 3 per cent, was generated from 
internal-combustion engines. It will be seen, therefore, that 
only about one-seventh of the total power demand of the coun- 
try was at that time supplied by water. It seems highly prob- 
able that the rapid development of water-power since 1907 
has increased its proportion of the total installed prime-mov- 
ing power. . , . 

Developed water-power in the U. S. [page 5]. There is 
a marked geographical concentration of developed water-power 
(as well as the similar concentration of potential power set 
forth above). Thus, nearly 50 per cent, of the developed 
"commercial" water-power of the country is located in five 
States, as follows: 

Per cent. 

California 14 

New York 13 

Washington 10 

Pennsylvania 6 

South Cai-olina 5 

Total 48 

An even more marked concentration of developed water- 
power employed in manufacturing is shown by the following 
summary : 

Per cent. 

New York. . 30 

New England States 36 

Minnesota and Wisconsin 17 

South Carolina 5 

Total 88 

Some problems of water-power development. Certain 
physical and economic facts must be recognized in discussing 



268 WATER-POWER DEVELOPMENT 

water-power possibilities. The production and consumption 
of power are simultaneous. It is not possible practically to 
store overproduction for future demands when production 
may be light. The three principal demands for power are 
lighting, traction, and manufacturing. If the greatest de- 
mand from each of these three sources came at a different 
period of the day, the total would be so distributed as greatly 
to reduce the required maximum capacity of the power plant. 
As a matter of fact, neither of these demands is uniform, while 
they more or less overlap. Thus, the demand for power for 
lighting tends to reach a maximum about the time that the de- 
mand for transportation is at its height. This overlapping 
creates what is known as the ''peak of the load." It is im- 
perative, therefore, to provide sufficient power to meet this 
maximum demand. Aside from these daily fluctuations in 
the power market, there is also a seasonal fluctuation. The 
demand in winter is greater than in summer. The daily 
fluctuation, moreover, is greater in winter. 

In addition to this fluctuation in the demand there is also 
a variation in the supply of water-power available. This is 
due to the fluctuating flow of streams. The flow varies ac- 
cording to the location and character of the drainage basin 
and according to seasons, and the seasons themselves, of 
course, vary in different years. A water-power installation, 
therefore, must also take these factors into account. If the 
installation provides only for utilizing the minimum flow there 
must be a tremendous waste of energy during the period of 
larger flow. On the other hand, as already stated, it is im- 
practicable to install power up to the maximum potentially 
available. 

Remedy for variations in supply and demand for power. 
The problem of a power producer is to meet these varying 
conditions of demand and supply in the most economical way. 
There are several means contributing to this end. 

The physical effect of irregularity in the flow of the streams 
can be partly overcome by storage. In no case, however, 



WATER-POWER DEVELOPMENT 2G9 

can storage give a stream anything like the power represented 
by its maximum flow. The amount of storage practicable de- 
pends upon the topography of the country and upon the value 
of the lands overflowed. Up to this time very little progress 
has been made in storage development. 

Aside from storage, it is possible to accomplish something 
by ''pondage," that is, the accumulation of water from day to 
day in power-dam ponds during that portion of the day when 
the demand is smallest. 

A more effective remedy is in "coupling up," into one unit, 
two or more sites accessible to the same markets. In prac- 
tically all cases some of the developments can cease operations 
when the highest demand is over and accumulate pondage to be 
brought into use at the period of highest demand the next 
day. In the meantime the other sites can meet the diminished 
demand. 

The variableness of power supply demand, however, cannot 
be entirely cured, even by storage, pondage, and "coupling." 
The effective remedy is the use of auxiliary steam plants. In 
nearly all cases hydraulic concerns must provide sufficient 
steam auxiliaries to meet variations not otherwise met. 

Advantages of unification of developments. On the other 
hand, if a power site or a group of power sites provides more 
power than a single market can consume, all the power can be 
utilized by "coupling up" two or more markets. 

The economic advantages gained by "coupling up" of sites 
or markets, or both, by means of transmission lines, obviously 
are great. It is apparent that the most efficient use of water- 
power from an economic point of view is facilitated by thus 
gathering into a single unit all the power available for a 
given market or a group of markets, using the same system 
of transmission lines. The independent operation of two sites 
may involve a great waste of energy and capital. In fact, in 
the case of a comparatively small water-power at a long dis- 
tance from a market it might be virtually impossible to de- 
velop it except in connection with some other site. In the 



270 WATER-POWER DEVELOPMENT 

same way, in the case of storage, there is an advantage in 
large-scale operations. This is because water gathered in 
storage reservoirs contributes to every power site below, thus 
making it advantageous to control all the sites dependent upon 
a storage project. 

Concentration of ownership and control. From the above 
facts it is clearly seen that in many instances local concen- 
tration carries with it great economic advantages. . . . 

As this report clearly shows, there is a general and marked 
tendency toward concentration in the control of water power. 
Such concentration takes two forms. One is the single owner- 
ship of practically all the power in a given locality and the 
other is the ownership of water-power in scattered localities 
by a single interest. The two are often found together. 

Certain forces in the water-power industry tend peculiarly 
toward concentration. The unification of developments and 
of storage, and of markets as well, incident to the highest 
efficiency in the utilization of water-power, as just described, 
clearly tend toward concentration of control. Concerns un- 
dertaking the development of water-power tend to acquire 
all available power in a given community because of the ad- 
vantages of unified operation above outlined. 

Another circumstance leading toward concentration of con- 
trol is the fact that the practical limit of electric trans- 
mission of water-power is only about 200 miles. This, it will 
be seen, makes it virtually impossible for a water-power con- 
cern in one part of the country to compete with another water- 
power concern in a distant part of the country. Aside from 
this limitation on transmission of power, moreover, is the fact 
that, as a rule, the total demand for power within an area 
of practicable transmission is almost invariably greater than 
the supply of water-power alone. The Bureau's investiga- 
tion shows that in no considerable area is the supply of power 
now generated from water sufficient to meet the total power 
demand. Owing to the large investment required to develop 
a water-power, and to this general limitation upon the supply, 



WATER-POWER DEVELOPMENT 271 

the most economical utilization of such power freciuently re- 
sults iu concentrating all the power developed within a given 
area under a single control. 

A peculiar circumstance which tends to accelerate con- 
centration of water-power ownership is found in the com- 
mercial customs prevailing among manufacturers of machinery 
and supplies for the generation of electricity. Such manu- 
facturers, in order to expand their business, often accept the 
securities of hydroelectric companies in payment, at least in 
part, for machinery and supplies. They have thus been led 
to enter actively into the hydroelectric field. Since the manu- 
facture of such machinery and supplies is largely concen- 
trated in a few hands, this obviously tends toward a 
corresponding concentration of water-power ownership. 

Again, a number of financial houses making a specialty of 
financing water-power developments have become interested in 
water-powers, and this has created another class of controlling 
interests. Furthermore, many officers and directors of equip- 
ment concerns and of engineering and financial houses have 
become individually interested in the same water-power de- 
velopments, thus bringing about a close relationship between 
the two interests. 

Still again, as shown later, there is an increasing inter- 
relationship between water-power enterprises and public- 
service interests. 

The concentration of ownership of developed water-power 
has steadily grown until in any given community it is usually 
all under a single control, or substantially so. Absolute owner- 
ship of all the power in a locality by a single interest, how- 
ever, is not necessary to establish control. If one concern owns 
the most advantageous sites, and has a strong foothold in the 
markets, it has a dominating position in that area. 

Such concentration of ownership has been most marked in 
the development of water-power for commercial use. There 
are, however, a few instances of marked concentration of the 
ownership of water-power used in manufacturing. The most 



272 WATER-POWER DEVELOPMENT 

noteworthy instance of this is found in the International Paper 
Co. . . . 

Summary of ownership and control by interests [page 27]. 
The General Electric interests control the water-power situation 
in large portions of Washington, Oregon, Colorado, Mon- 
tana, and elsewhere. The Stone and Webster interests exer- 
cise control (based largely, however, on management rather 
than ownership) in localities in Washington, Iowa, and 
Georgia. The Pacific Gas and Electric Co. practically dom- 
inates the power situation in a large number of localities 
in the northern half of California. The Southern Power 
Co. controls the power situation in South Carolina and has 
a strong foothold in North Carolina. The S. Morgan Smith 
interests dominate the power situation in the vicinity of At- 
lanta, Ga. The Telluride Power Co. controls absolutely a 
large territory in Utah and Idaho. The Commonwealth 
Power, Eailway and Light Co., which is a part of the Clark- 
Foote-Hodenpyl-Walbridge interests, dominates the power 
situation in the Lower Peninsula of Michigan. The Gould 
interests control the best of the available water-power sites in 
the vicinity of Richmond, Va. 

Relations of water-power companies to public-service cor- 
porations. The preceding discussion has indicated a rather 
general relationship between water-power companies and 
public-service corporations. This common control of the 
agencies of traffic and distribution of light in our cities, on 
the one hand, and the sources of power for operating them, 
on the other, is an exceedingly important feature of water- 
power development. The list of public-service agencies eon- 
trolled by or affiliated with water-power concerns is rapidly 
increasing. Generally the relationship between water-power 
companies and public-service corporations is that of owner- 
ship, but there are eases in which there is merely affiliation 
through common officers or directors or the sale of power. 

Some idea of the extent of such common control of public- 
service corporations by water-power companies is afforded by 



WATER-POWER DEVELOPMENT 273 

the fact that six water-power interests control street railways 
in 29 cities and towns, electric-lighting plants in 204, and gas 
plants in 55. . . . 

In brief, in the country as a whole, water-power companies, 
or companies affiliated with them, own or control and operate 
street railways in no less than 111 cities and towns in the 
United States, electric lighting plants in 669 cities and towns, 
and gas plants in 113 cities and towns. These companies, 
moreover, supply power to municipal lighting plants in a con- 
siderable number of cities and towns. Many of these are 
among the most important municipalities in the States in- 
volved. Furthermore, in many cities and towns in the United 
States all the public utilities — street railways, electric light- 
ing and gas plants — are controlled by water-power interests. 

Interrelationship of large interests [page 29]. Beyond 
the marked concentration of ownership already set forth, 
there is a substantial and growing interrelationship, of 
greater or less degree, among a number of these large in- 
terests that suggests the possibility, if not the probability, of 
still greater concentration. In other words, not only is there 
a tendency toward control of public utilities, including water- 
power, by large combinations, but there is a tendency to- 
ward a substantial relationship among the combinations them- 
selves. This relationship is established in various ways. In 
some cases one interest owns stock and has directors in a water- 
power company that is managed or controlled by another 
interest ; in other cases there are directors common to two or 
more interests that have directors in a third company. Again, 
a relationship is sometimes established through banking houses. 
The fact that an individual is a director in two companies does 
not necessarily point to a close relationship ; but it must be 
admitted that it tends to establish a bond of common interest 
that might at any time induce and facilitate an actual con- 
solidation. . . . 

In this maze of interrelationships, ranging from practically 

joint control down to personal association in common direc- 
ts 



274 WATER-POWER DEVELOPMENT 

torates, is clearly revealed the drift of water-power and public- 
utility corporations under the control of a few very powerful 
interests. These connections, some stronger and some weaker, 
suggest a favorable condition for a very small number of men 
to consolidate very large interests whenever they may de- 
cide it to their advantage to do so. This interlocking of in- 
terests through directors, while not necessarily indicating a 
purpose of monopoly, certainly affords an incentive and a 
means of combination. . . . 

The best development of the resource [page 31]. The 
utilization of water-power directly tends to conserve the fuel 
supply of the country, without in any way diminishing the 
future supply of water-power itself, since water-power is not 
decreased by use. The power now (February, 1912) required 
to operate the industrial enterprises and public-service utili- 
ties of the country (excluding steam railroads) probably 
exceeds 30,000,000 horse-power. Approximately 6,000,000 
horse-power are now developed by water. It may be con- 
servatively estimated that this represents a saving of at least 
33,000,000 tons of coal per year. It is certain that several 
additional millions of horse-power could be profitably de- 
veloped from water, thus affecting a still further conservation 
of coal. It is obvious, therefore, that the early and complete 
utilization of all commercially available water-power of the 
country should be encouraged by every proper means. The 
real waste of water-power is its nonuse. The most efficient 
utilization of such power, however, tends directly toward 
concentration of control, through advantages derived from 
''coupling up" of sites and markets, unification of storage, and 
relationships with public-service corporations. This has been 
already brought out. The problem, therefore, is to reconcile 
this necessity of full and early development of water-power 
with the proper protection of the public. 



THE STANDARD OF LIFE 

[This extract from The Standard of Life and Other Studies by 
Mrs. Bernard Bosanquet, New York, the Macmillan Co., 1898, is re- 
printed by permission of the publishers. It is taken from the first 
part of the tirst essay, which gives the title to the collection.] 

If any proof were wanted of how ideas may mold the 
lives of men and be the moving spirit of their progress, 
we might surely find it in this deeply significant idea of the 
Standard of Life. Around it center most of our industrial 
problems of to-day, and more or less consciously it is made the 
base for all the forward movements of the working-class. And 
like all living ideas it is incapable of exact definition ; in other 
words, its significance is inexhaustible, for it has not yet be- 
come stereotyped into one narrow usage. It may be taken 
to include all that is best and highest in human life, or it 
may be narrowed down to signify nothing more than the satis- 
faction of the crudest cravings of mankind; and its very 
elasticity gives it a deeper significance, for by the inter- 
pretation which he gives to it you may most surely know the 
man for what he is. 

But though we cannot define the idea, we can, by considering 
its varying usages, and the part which it plays in our own 
thought and life, form some estimate of its importance, and 
perhaps lay emphasis on elements which are too liable to be 
overlooked. 

In the first place, we may consider in what sort of sense 
we are justified in speaking of a standard in this connection. 
Behind the fountains and lions in Trafalgar Square is a stone 
wall, and in this stone wall is something so important that 
it is hardly ever looked at, . . . certain pieces of metal let 
into the stone, and marking off lengths which are named as 

275 



276 THE STANDARD OF LIFE 

inches, feet, yards, and furlongs. This is the standard of 
measurement by which is determined what length shall be 
called an inch or a foot, and beyond which there is no appeal. 
Such a standard is an absolute necessity as one of the funda- 
mental ideas upon which civilized intercourse is based; with- 
out it there would be nothing to prevent any person from 
having his own idea as to what sort of length a yard should 
be. . . . 

The necessity of a standard is not confined to the common- 
place facts of weighing and measuring. The tuning-fork of 
the singing master sets a standard to which his pupils must 
conform, and without which he would himself fall into uncer- 
tainty ; while in the Ten Commandments we have a standard of 
morality which has served the human race for countless gen- 
erations. 

How is it with the Standard of Life? It may be objected 
that this is something too vague and indefinite to be really 
analogous to these; that there is nowhere any definite state- 
ment laid down to which we can appeal, and that it is merely 
a picturesque way of saying that a man ought not to live like 
an animal, or some other rhetorical phrase of the kind. 

It is true, no doubt, that many of us do not know where to 
look for our standard, and should be puzzled if suddenly called 
upon to define it. But this is partly again because it is so 
important a matter that those who have any standard at all 
have no need to refer elsewhere; it has become a part of 
their very lives, and consciously or unconsciously they 
measure their every action by it. What else does it mean 
when we say, "I can't live in that street, it is too dirty and 
disreputable," or, "1 wouldn't turn out a piece of work in 
that disgraceful state, " or "I could n 't bring myself to such 
a low trick as that," or, "I 'd be ashamed to let my chil- 
dren run the streets in that condition"? Or when, again, 
we so order our lives that the ease and pleasure in them 
shall not become disproportionate to the amount of toil and 
exertion 1 We are simply measuring certain facts by a stand- 



THE STANDARD OF LIFE 277 

ard which we have within us of decent living, good work, 
honesty, family pride, and strenuousness ; and it would not be 
difficult for any thoughtful man to make clear to himself just 
what the sort of life was which he had taken as a standard. 
And he would then find that just so far as he fell below that 
standard he would consider his life unsatisfactory and a 
failure. 

The great difference between the Standard of Life and 
other standards seems at first sight to be, that while physical 
standards are the same for all, the Standard of Life varies 
for each of us. But this is largely only appearance, and due 
to our narrow way of regarding the standard. When we 
take it in a larger sense, we begin to see that the difficulty 
is not so much that for each of us it is different, but that for 
all of us it is progressive. 

For instance, one way of narrowing the idea is to use it 
as if it could be expressed in money terms alone, and to speak 
of the standard of any class as represented by 20s., 30s., or 
40s., a week, as the case may be. . . . 

Another way of simplifying the question is to divide the 
community up into social classes, and assign a different stand- 
ard to each class; and for this view there is a certain justi- 
fication if we look rather to the probable origin of class 
distinctions than to the facts as they stand at present. For 
it seems likely that class distinctions have their origin in 
differences of function, and that our Standard of Life differs 
in detail according to the particular function we have to 
fulfil in the community. In other words, according to the 
occupations which they follow men's standards will vary in 
kind, without our being necessarily able to say that this or the 
other is the higher or lower. If for the present we leave out 
of sight the lowest class of all, the Eesiduum (which is the 
Residuum just because it is made up of men and women who 
have lost their standard), then we shall find that in certain 
fundamental respects the standard is the same for all Eng- 
lishmen to-day. For instance, in cleanliness, morality, and 



278 THE STANDARD OF LIFE 

sufficiency of food, we differ no doubt from person to per- 
son; but we could not fairly say that on the whole it is 
characteristic of any one class to be cleanlier, more moral, or 
to eat more than any other. But as soon as we get away 
from these elementary facts, great divergences begin to ap- 
pear, and those differences begin to show themselves which 
seem to coincide with what we are apt to call class distinc- 
tions. The most obvious differences between classes, those 
which at once attract the attention to the exclusion of un- 
derlying identities, consist in their different standards in such 
matters as dress, education, housing, and recreation. Certain 
classes appear to attach more importance to these, and at any 
rate spend much more money upon them; and we incline, 
perhaps somewhat hastily, to assume that the more expensive 
standard must be higher. 

The attempt to understand these differences in the standard 
brings us into contact with some of the most perplexing prob- 
lems of sociology. The first which stares us in the face is one 
which has baffled so many young inquirers that it may fairly 
be called the pons asinorum of social reform. Why are there 
different classes in the community ? Why do we not all belong 
to one class, with one Standard of Life and equal means of 
attaining it? This is one of the first questions we begin 
to ask upon emerging from the sublime indifference of child- 
hood to all social arrangements, and one which nobody seems 
prepared to answer for us. Fortunately for our present pur- 
pose no comprehensive answer is needed; it will be sufficient 
to note briefly one or two of the considerations involved in 
our social inequalities. 

And first, as to the connection between class distinctions 
and difference of social function. History does not tell us 
whether there was ever a time in which all men were equal, 
but we do seem to find that, broadly speaking, the differentia- 
tion of society into classes has followed the lines of its dif- 
ferentiation into different functions or employments. Leav- 
ing out the disturbing influence of conquest, we see that 



THE STANDARD OF LIFE 279 

the general lines of division between classes coincide with 
the general lines of division between function in the coramun- 
ity. One strong instance of this we find in the feudal system, 
under which the distinctions between classes and employ- 
ments were strongly marked, and which is defined as mean- 
ing "property held as a reward or in consideration of special 
services." The propertied class was then, theoretically at 
least, the class which rendered special service to the State; 
and, speaking broadly, both the property and responsibility 
were hereditary. 

Again, it is worth noticing that our so-called "middle 
class" is a comparatively modern growth, and corresponds to 
a development of the professions and of the organizing 
branches of industry. 

But the most marked illustration of the coincidence of class 
and employment is to be seen where we find the social arrange- 
ment known as caste. The essence of caste, apart from its 
religious significance, is, that certain functions are committed 
to certain classes, and that these functions are to a greater 
or less extent hereditary, so that members of the same family 
continue to follow the same occupation from generation to 
generation. 

We may say then, that in the past at any rate difference of 
class has largely depended upon difference of function or 
employment. 

Now if we could find a society in which every one followed 
the same employment, and in which there was also no dis- 
tinction of classes, we should have a striking corroboration of 
the view that the two depend upon each other. A society with 
literally no difference of employment would perhaps be an 
impossibility, but we get as near to it as we can in the modern 
state of Bulgaria. The people of Bulgaria are essentially a 
race of peasant proprietors, and form a society which is almost 
homogeneous. The one exceptional class is that of the State 
officials, the civil service ; but this service is itself recruited 
from the peasant class and shares its characteristics. "With 



280 THE STANDARD OF LIFE 

this one exception there seems to be no opening whatever for 
educated people, and the question has been seriously raised, 
whether it is of any use to educate, beyond the most element- 
ary stage, boys who have nothing before them but the career 
of the professional politician or the meager life of the peasant. 
What that life is we may gather from . . . Dicey 's "The 
Peasant State." . . . 

It seems clear, then, that without going so far as to say 
that differences of employment are the cause of class distinc- 
tion, or vice versa, we are safe in assuming that there is some 
close connection between them, and that a society which lacks 
the one is likely to be deficient in the other. 

Perhaps the most important characteristic in which we 
differ from more ancient forms of society lies in the fact 
that functions and employments are no longer hereditary in 
any strict sense of the term. It will of course always remain 
natural, that other things being equal, a father should teach 
his son his own trade ; and thus there will always be a tendency 
for families to continue in the same employment. But there 
is no longer any artificial barrier erected by tradition and cus- 
tom, and it is possible for any boy on leaving school, if his 
intelligence is not below the average, to choose among a dozen 
different occupations. This possibility of choice, i.e.; of 
adapting the occupation of the boy to his individual disposi- 
tion and capacity, instead of forcing him into the same groove 
as his ancestors, is of the utmost importance. Plato laid stress 
upon it in his conception of the ideal State, which was to be 
organized as a system of classes, based upon difference of func- 
tion, wherein each man was to do that which he was best 
fitted by nature to do. 

There is probably no way in which it can be ensured beyond 
fail, that a man shall do what he is best fitted to do ; some spend 
their lives in looking for their vocation and die without find- 
ing it. But it is clear that all will have a better chance in a 
complex society offering many different openings, than in a 



THE STANDARD OF LIFE 281 

simpler one such as Bulgaria, where all members are more on 
a level, and where there is little variety offered. We find a 
similar contrast between developed countries with fully dif- 
ferentiated occupations, and new countries where there is as 
yet little demand for anything but manual labor. In the latter 
there is no career for the weakly or intellectual ; those whose 
nature and disposition might have found full satisfaction, are 
in a double sense "out of place" in a primitive society. 

And together with this opening up of employments to all 
tlie members of a community we find the simultaneous process 
going on of the breaking down of class barriers. . . . 

This means of course an immense widening to the scope of 
ambition. Professor Cunningham points out ("Growth of 
English Industry and Commerce," page 410) that the old 
Burgess society "had this striking characteristic, that the 
ordinary object of ambition was not so much that of rising out 
of one's grade, but of standing well in that grade; the citizen 
did not aim at being a knight, but at being warden and master 
of his guild, or alderman and mayor of his town. For good or 
evil we have but little sympathy with these humble ambitions ; 
every one desires to rise in the world himself, and the phil- 
anthropic construct social ladders by which the poorest child 
may rise to the highest ranks, as was done by ecclesiastics m 
the Middle Ages." 

That this breaking down of artificial barriers must in the 
long run be for good, we can hardly doubt. Man is naturally 
progressive, both in his wants and in his aspirations ; and by 
the very law of his being, must always — if only left to himself 
— be seeking after new interests, new plans, new ambitions. 
But if no interests are there, if the means to carry out his plans 
are wanting, if his ambitions are thwarted and held in check 
by custom and tradition, he will never break through the lower 
circle of desires and satisfactions, which we share with the 
brutes, and progress will be impossible. 

In this progressiveness of the human being we find one rea- 



282 THE STANDARD OF LIFE 

son for those differences in the Standard of Life which we are 
trying to understand. Not all have yet worked out their 
freedom from the lower range of desires-, for these, satisfac- 
tion of the appetites means only renewed opportunity for 
the repeated satisfaction of the appetites. Of those again who 
have set their hopes on pressing forward, who see before them 
a universe of desirable things to be mastered, some have out- 
stripped others and lead the way. In their advance lies the 
chief hope for those behind : the sight of better things attain- 
able is the chief spur to men to raise their own standard, to 
seek for themselves and their children advantages for which 
they would otherwise care nothing. 

Another reason for differences in the standard, and one still 
more in the nature of things than the former, is to be found 
in the different conditions under which varying kinds of work 
must be carried on. The scholar eats much less than the 
artisan who goes through great physical exertion, but he needs 
instead greater warmth and quiet; just as their tools must 
always be different, steel and iron for the one and books for 
the other, so also their standards must differ in kind as regards 
the surroundings in which they live. That one or the other 
may cost more in terms of money is a matter of accident, and 
may indeed tell hardly upon the one who is generally supposed 
to be in a better position. The young clerk, who earns no more 
than the artisan, but must wear a black coat ; and the gover- 
ness, whose scanty earnings must provide evening dress, know 
well enough that the difference in the standard is not in their 
favor ; but the obligation to ' ' dress according ' ' is one which is 
fully recognized by the working-class, and will always be ac- 
cepted as a reason why John the clerk should contribute less 
to the family expenses than Tom the carpenter. 

In the mere fact, then, of differences of standard, apart 
from accidental accompaniments of which we may hope in 
time to free ourselves, we have both the condition and conse- 
quence of vitality and progress in a nation. And indeed we 
find that what really practical reformers are working for is 



THE STANDARD OF LIFE 283 

not to bring about greater uniformity, but to get rid of cer- 
tain definite disadvantages to which people of certain classes 
or occupations are subjected. . . . 
To sum up briefly : 

1. Eveiy man (above the lowest residuum) has a Standard 
of Life, by which, consciously or unconsciously, he orders his 
life, and estimates its success or failure. 

2. The standard in England of to-day is the same for all 
to a certain extent, and in certain fundamental but less ob- 
vious facts; but it is essentially progressive, and in more 
obvious ways it varies greatly from class to class, and accord- 
ing to differences of occupation. 

3. These differences do not involve any essential incapacity 
on the part of any class to raise and maintain its own standard, 
and therefore every class, as every individual, has both the 
right and the duty to fix its standard as high as it can attain, 
there being no limits which are more proper for one class than 
another. 

4. The well-being, moral and economical, of any man or 
class will be for the most part determined by the standard 
which he accepts, and for this reason we might formulate this 
practical ideal for individuals : That every man should aim at 
giving his children at least as high a standard as his own, and 
as good an opportunity of realizing it. And that this is not 
an unnecessary matter to urge, may be witnessed by the fact 
that large numbers of our very poor are unskilled laborers 
whose fathers were skilled artisans. 



THE INFLUENCE OF INCOME ON STANDARDS OF 

LIFE 

[An investigation of the working class standard of living in New 
York City, undertaken by the Sage Foundation and by the New York 
State Conference of Charities and Correction, was carried on in 1907- 
08 under the direction of Robert C. Chapin, professor of economics 
in Beloit College. The results were published in The Standard of 
Living among Workingmen's Families in New York City, by E. C. 
Chapin; Russell Sage Foundation Publications. 

A summary of the findings comparing them with data from other 
sources, was presented by Professor Chapin, Dec. 29, 1908, at a meet- 
ing of the American Economic Association. The paper is divided into 
two parts: I. Variations in amount of income. II. Sources of in- 
come. These extracts comprise most of the first part of this paper. 
(Publications of the American Economic Association, Third Series, 
Vol. X, 1909, Papers and discussions of the twenty-first annual meet- 
ing, pp. 181-188.)] 

Engel's law. Ernst Engel has taught us to look at the ap- 
portionment of income among the principal objects of family 
expenditure, and to see just how changes of income work out 
in changes in the elements of the standard of living — ^what 
kinds of things are added as income increases, what are 
omitted as income falls. On the basis of returns from 199 
Belgian families, gathered in 1855 by Duxpetiaux, Engel made 
out his familiar table of percentage expenditures for Saxon 
families of three income-grades. He found that the poorest 
families, whose income was under $300 of our money, gave for 
food 62 per cent, of all that they spent. Families having from 
$450 to $600 spent 55 per cent, for food, and those with from 
$750 to $1000 spent 50 per cent, for this purpose. Hence he 
made his generalizations that, as income increased, a less and 
less part of it was needed for food, and that the percentage of 

284 



THE INFLUENCE OF INCOME 285 

expenditure for food Avas therefore an index of the degree of 
prosperity attained. He applied this standard in a later 
work to the Avretchcd English peasants whose budgets had been 
collected by Eden in 1797, and found that the average of 
their food-expenditure was 73 per cent, of their total expendi- 
tures. 

Food and other wants. The generalization regarding the 
tendency of the food-percentage to diminish as the income 
increases has been verified in many later compilations of 
family budgets. The Report of the United States Bureau of 
Labor for 1903, for instance, finds a decline in food-expendi- 
ture from 47 per cent, among families having incomes between 
$400 and $500 to 40 per cent, for families with incomes be- 
tween $900 and $1000. Colonel Wright's Massachusetts in- 
vestigation of 1875 showed a decline of 64 per cent, for 
families having less than $450 a year to 51 per cent, for 
families having over $1200 a year. 

As the demands of the stomach are more easily met out of 
the larger income, what expenditures are increased to corre- 
spond? Engel's Saxon tables shows a constant percentage for 
housing and for fuel and light, a slight increase for clothing, 
and a rise in the percentage allotted to expenditures outside of 
immediate physical necessities from 5 to 10 and from 10 to 
15 per cent, as we ascend the income scale. This indicates, 
that, along with somewhat better provision for food and 
shelter, it is possible for the family to indulge in more at- 
tractive clothing and household furnishings, and to spend 
something for amusement, for reading matter, and for minor 
personal indulgences. 

Relative saturation point. All reports agree as to the 
broadening of the plane of living, with rising income, in re- 
gard to expenditure for the satisfaction of these culture 
wants. Not all, however, coincide with Engel's data in re- 
gard to a constant percentage for rent and for clothing. 
Colonel Wright's figures for the United States at large in 1901 
show a nearly constant percentage for rent (17 to 18 per cent). 



286 THE INFLUENCE OF INCOME 

but his Massachusetts report of 1875 shows a decline in the 
first three income-groups from 20 to 15.5 and then to 14 per 
cent., followed by a rise to 17 per cent, and a drop to 15 per 
cent. Recent investigations in New York, that of Mrs. More 
in her Workingmen 's Budgets, and that of the Committee of 
the New York Conference, agree in showing a steady falling 
off in percentage expenditure for rent with each increase of 
one hundred dollars in income. The percentages found in 
the latter inquiry were 24 for incomes between $600 and $700, 
and for successive income groups, rising by $100 stages, 22, 20, 
19, 18, 16 — the last for incomes over $1100. The congestion 
of population in New York, fortunately exceptional, doubt- 
less accounts in part for the fact that in that city house rent 
claims one-quarter of the $600 incomes. 

An examination of the percentage expended for food, 
housing, and other purposes suggests that the proportion of 
income devoted to each of them may not always move in the 
same direction as we pass from one income-group to the next 
higher. The $400 families in the Labor Report of 1903 spend 
a higher percentage for food than the $300 families. If the 
comparison is carried far enough upward in the scale of in- 
comes, a point is reached in New York where rent ceases to 
fall off in percentage expenditure, and clothing ceases to de- 
mand a larger proportion than in the group preceding. The 
fact seems to be that each of the three primary wants takes 
its turn in urging its claims vociferously, and when these have 
been pacified, the desires for the things that make life worth 
living begin to be heard. In regard to each class of wants in 
turn a point of relative saturation is reached, and a more ade- 
quate satisfaction of the next one becomes possible. 

Changing ratio for housing. In New York City the most 
imperative need on the lowest incomes is for housing. Some 
place of shelter must be provided, and, however wretched, it 
will not be cheap. Thirteen dollars a month was the average 
rent paid by seventy-two families whose average income was 
$650. But this amounts to $156 a year, or 24 per cent, of the 



THE INFLUENX^E OF INCOME 287 

total income. When the cost oi' shelter demands a quarter of 
the whole income, food and clothing must take what is left. 
But the accommodations obtained as the minimum that can 
be lived in by the families with $650 a year are practically 
good enough for those with an income one and two hundred 
dollars greater. Seventy-three families whose income aver- 
aged $846, spent only fourteen dollars a week on the average 
for rent. But this was only 21 per cent, of their larger total 
expenditure. Meanwhile their food percentage was practi- 
cally as high as that of the $650 group (44.3 per cent.), repre- 
senting an increase in average amount expended from $290 to 
$360. 

Changing ratio for food. In food the point of diminishing 
percentage was not reached until after the $1000 line was 
passed. The food-percentage increased, as with the families 
in the United States Labor Keport of 1903, on passing from 
$400 to $500, and from $500 to $600. This may be due in 
part to exaggeration in the returns of expenditure for food. 
In part it was due to the fact that until an increase of $800 
was reached one-third of the families were underfed. The 
proportion of the total food-expenditure that was given for 
animal food increased, and that expended for cereal food 
diminished. The cost of animal food comprised 29 per cent, 
of the total food bill of the families in the $600 income- 
group, and 32 per cent, of those in the $1000 group. Cereals 
dropped correspondingly from 21 to 17 per cent. The ex- 
penditure for alcoholic drinks increased, taking into account 
only those families that reported this item, from the average 
of $27.25, or 4.2 per cent, of the total expenditures in the 
$600 group, to $59.96, or 5.2 per cent., in the $1100 group. 

Clothing; other wants. Clothing comes last of the three 
to a constant or a diminishing proportion of the expenditures. 
In the New York families under consideration the percentage 
expenditure rises slightly with each increase of $100 in in- 
come until the $1100 group is reached, and thereafter remains 
constant at about 15 per cent. The expenditures for other 



288 THE INFLUENCE OF INCOME 

purposes than these three primary necessities are kept under 
until these wants are met. By the time something like an 
equilibrium among these three has been reached, say at $800 
for our New York families, the expenditure for recreation, so- 
cial obligations, care of the health, and all other purposes save 
fuel and light, claims a larger proportion of the income. The 
proportion is 1 per cent, higher at $700 than at $600, but at 
$800 it rises from 14 to 16 per cent, of the total expenditure, 
and continues to increase without sign of stopping. That is, 
the culture-wants are beginning to claim their own, which, 
under the necessity of keeping the wolf from the door, they 
could not be permitted to have. 

A striking example of this tendency of subsistence-wants to 
claim the lion's share of all increasing income is found in 
Engel's comparison of the Belgian returns of 1853 with those 
of a similar investigation made in 1891. At the latter period, 
although the average income had nearly doubled, the expendi- 
ture for food comprised 65.7 per cent, of the total in 1891 as 
compared with 64.9 per cent, in 1853. In fact, food, clothing, 
rent, and fuel and light consumed 96 per cent, of the income 
in 1891 and only 94 per cent, in 1853. 

Minimum standards of consumption. The same general 
conclusion as to the relative insistence of the several classes 
of wants may be drawn from another method of handling the 
New York returns. A minimum standard, as exact as could 
be determined, was applied to the expenditures for food, 
clothing, and housing, and the number of families counted in 
each income group who came short of the standard. For 
food, the minimum was set at an expenditure at the rate of 
22 cents per man per day, as calculated after the manner 
made familiar by W. 0. Atwater in the Bulletins of the De- 
partment of Agriculture. This figure was reached, after 
an analysis of one hundred of the family reports, by Dr. 
Frank P. Underbill, of Yale University, a competent expert. 
Professor Atwater 's estimate on the basis of data gathered in 



THE INFLUENCE OF INCOME 289 

New York City a few years previous, when a lower scale of 
prices prevailed, was from 23 to 25 cents. For housing the 
minimum was fixed at one and one-half persons per room, that 
is, not more than six persons to four rooms. For clothing the 
minimum was set at an allowance of $100 for the assumed 
family of five persons, expenditures for washing being in- 
cluded in this sum. 

For our present purpose the accuracy of these estimates of 
a minimum recpiirement for physical efficiency does not con- 
cern us, but only the variations in the departures from them 
that appear in the several income-groups. Measured by these 
standards, of the families with incomes between $400 and 
$500 all are underfed, 88 per cent, are underclad, 63 per cent, 
are overcrowded. That is, the want of shelter is being satis- 
fied at the expense of food and clothing. In the next income- 
group ($500-$600), the underfed are 65 per cent., the under- 
clothed, as before, 88 per cent., the overcrowded 71 per 
cent. In paying more attention to the need of food, less at- 
tention is paid to shelter. A higher rental is paid, but more 
persons are crowded into the accommodations offered. In 
the next income-group ($600-$700) the underfed have fallen 
to 33 per cent., the underclad to 63 per cent., the overcrowded 
to 57 per cent. For every income-group thereafter, the over- 
crowded families preponderate over both the other classes. 
Even in the $1100 income-group 21 per cent, are overcrowded, 
but none underfed, and only 6 per cent, underclad. These 
figures, taken as a whole, imply that the most urgent need at 
the minimum income is for shelter, outclamoring not hunger 
perhaps, but at least the want of adequate food. With a 
larger income a pause can be set to the desire for better hous- 
ing, while more attention is given to the providing of food. 
With an income still larger, of $900 and above, the deficien- 
cies in diet are supplied, and at $1000 the minimum allow- 
ance for clothing has been attained by practically all the 
families. Not even at this point, however, does the desire for 

19 



290 THE INFLUENCE OF INCOME 

adequate housing, at the price which must be paid for it, suf- 
fice to persuade more than three-fourths of the families to go 
without enough of other things to secure it. 

Saving. Another alternative to expansion of expenditures, 
for whatever purpose, as income increases, is saving. Saving 
becomes easier as income increases. But the point where 
savings begin is not necessarily the point where a standard 
even of physical efficiency is attained. There are families 
that save at the expense not only of comfort, but even of 
health, and there are families that no increase of income would 
induce to save. Of the underfed families just alluded to, 
one-half reported a surplus of income over expenditure of at 
least $25; 65 per cent, of the families reckoned as under- 
clothed, and 44 per cent, of the overcrowded likewise reported 
such a surplus. "When this is compared with the percentage 
of all families that reported a surplus, namely 36.5, it seems 
fair to infer that the desire to save represses expenditures to 
meet actual physical necessities. 

On the othel* hand, by no means all families on a larger in- 
come preferred saving to spending. Not until $1300 is 
reached is there a constant increase in the number of 
families that report a surplus of income over expenditures. 
This indicates that there are Micawbers on large incomes as 
there are misers on small incomes, but also that the social 
influences of New York City, at least, encourage adding to 
the good things included in standards of living quite as much 
as they encourage saving. The proportion of savers among 
the Russian and Italian families was found to be much higher 
than among families of more thoroughly Americanized stock. 

Oonclusions. On the whole the conclusions drawn from the 
New York investigation substantiate the restatement of 
Engel's "laws" given by Stephen Bauer in his article 
" Konsumtionsbudget " in Conrad's Handworterbuch, as fol- 
lows : 

With increase of income : 



THE INFLUENCE OF INCOME 2'Jl 

1. The proportion spent for food, especially for vegetable 
food, falls. 

2. The proportion saved constantly increases. 

3. The proportion spent for housing, fuel, light, falls until 
a certain income is reached, then remains constant or in- 
creases. 

4. The proportion spent for animal food, drink, clothing, 
culture, and recreation rises until a certain income is 
reached, then remains constant or falls. 



ECONOMIC CAUSES AS AFFECTING THE POLITICAL 
HISTORY OF THE UNITED STATES 

[An address with this title was given by W. M. Daniels, then pro- 
fessor of political economy in Princeton University, before the Scottish 
Society of Economists in 1906, and printed in The Accountants' Mag- 
azine, for May, 1907. It is here somewhat abbreviated and edited, 
with the approval of the author.] 

Before 1820 the custom had grown up for British travelers 
to the United States to make a book out of their transat- 
lantic impressions. Despite their curiously varied verdicts, 
there was one aspect of contemporary life upon which they 
were in singular accord. This was the all-important in- 
fluence exerted by an almost boundless unoccupied domain 
beyond the line of actual settlement. The vivacious Miss 
Martineau, in her "Travels in America," published in 1837, 
has recorded that "the possession of land is the aim of all 
action, generally speaking, and the cure for all social ills 
among men in the United States. If a man is disappointed 
in politics or love, he goes and buys land. If he disgraces 
himself, he betakes himself to a lot in the "West. If the de- 
mand for any article slackens, the operatives drop into the 
unsettled lands. If a citizen's neighbors rise above him in 
the towns, he betakes himself where he can be monarch of all 
he surveys. An artisan works that he may die on land of his 
own. He is frugal that he may enable his son to be a land- 
owner. ' ' 

Miss Martineau and her colleagues were quite correct in 
their insistence upon the dominant role that an imperial 
abundance of unoccupied territory was to play. The first 
period of our national development, economic and political, 
corresponded roughly with the duration of a free public 

292 



ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 293 

domain, which challeugecl the pioneer and settler to the further 
eon(iuest of physical nature. The second period began about 
1880 with the exhaustion of our free lands and the vanish- 
ing of the frontier. The first era was one of expansion and 
settlement; the second, in which we still live, is one of re- 
adjustment and recoil. 

In treating of the economic causes which have affected the 
political history of the United States, I shall speak first of the 
manner in which free land reacted upon our constitutional 
system; second, of the clash of slavery and free labor; and 
lastly, of the power of concentrated financial control. 

I. Free land and democracy. The process of westward 
expansion and settlement has too often been described in its 
external aspect, in the baldness of its objective statistical de- 
tail. But without some apprehension of the economic society 
which that expansion into new lands called for a time into be- 
ing, the most thorough-going political transformation in our 
history cannot be grasped. 

The notion may be dismissed at the outset that the winning 
of the Western wilderness was largely an automatic process, 
due merely to the growth and spread of population into va- 
cant, contiguous territory. The instinct for successful mi- 
gration and colonization is a rare endowment, found only 
among a few peoples, and exercised by them only inter- 
mittentl3^ 

"The tide of Anglo-Saxon settlement was for two centuries 
held in by mountains near the Atlantic shore-line, and then 
swept to the base of the Eocky Mountains in much less than 
half that period." Not until the tenuous girdle of French 
trading-posts along the great lakes and the Mississippi was 
snapped, did the pent-up spirit of colonization find a second 
outlet. 

How very imperfectly this westward trend of settlement 
was then grasped, even in the United States, may be gathered 
from the locating in 1790 of Washington, the national 
capital, at what is practically the middle of the Atlantic sea- 



294 ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 

board. Supposed originally to be centrally situated for all 
time to come, it is to-day hundreds of miles from the center of 
population, and three thousand miles from the States on the 
Northern Pacific. Since 1800 the center of population has 
moved regularly with each decade towards the west, in some 
decennial periods as much as eighty miles, and rather curi- 
ously has always closely hugged the 39th parallel of north 
latitude. The lure of free land has been the steady magnet, 
while industrial depression in the East has by a process of 
repulsion occasionally reinforced the steady pull westward. 

The founders of the new Western States were from the 
native Eastern stock, but sifted out of it by a self-chosen 
career of adventure in confronting and vanquishing primeval 
nature. 

The pioneer class could not be recruited from an exploited 
fringe of an early proletariat, or from raw immigrants. De 
Toequeville had noticed in 1835 that immigrants to America 
did not push west, and had explained that "the desert cannot 
be explored without capital or credit, and the body must be 
accustomed to the rigors of a new climate before it can be 
exposed to the chances of forest life." In later decades free 
transportation has often been furnished to induce the immi- 
grant to locate at a distance from his port of entry. But 
the pioneer was seldom an immigrant, and the early settler 
w^as seldom a peasant. "Everything about him," testifies 
De Toequeville, "is primitive and unformed, but he is him- 
self the result of the labor and the experience of eighteen 
centuries. He wears the dress and speaks the language of 
cities, and penetrates into the wilds of the New World with 
the Bible, an ax, and a file of newspapers." 

I have dwelt upon the origin and character of the early 
Western settlers because it was the central West that was 
destined to transform the political habit of the United States. 
That influence, however, we shall seek in vain in the shifting 
ebb and flow of early political conflicts. The fairly whim- 
sical way in which not only the West but the other sections, 



ECONOMIC CAUSKS AFFECTING POLITICAL HISTORY 295 

New Euglancl and the South, shifted their political pref- 
erences until slaver}'- had become the one imperious issue 
reminds one of Talleyrand's cynical remark, that a man who 
aims to be true to his party must be ready for frequent 
change of his principles. 

But while no decipherable progress can be conjured out of 
alternating party triumphs in the central West, the unprec- 
edented economic opportunities long enjoyed by all the in- 
hal)itants of the new commonwealths in approximate equality 
were destined to transform the whole political fabric. The 
abundance and fertility of the soil yielded to the unflagging 
energy of the new settlers a crude but very bountiful subsist- 
ence. The hired laborer was able to wrest from his employer 
a wage commensurate with that which the worker could com- 
mand for himself by resorting to fertile and unappropriated 
land. The standard of wages and of comfort was high, and 
divergences in incomes and even in possessions were small and 
unimportant. From this fundamental economic equality 
there resulted in these frontier communities, unused to social 
distinctions, and untrained in the notion of class subordina- 
tion, a fierce e(iualitarian spirit which found its earliest ex- 
pression in their local politics. "Every age," says Burke, 
"has its own manners and its politics dependent upon them." 
The manners and customs of the early West were the prod- 
uct of approximately equal earnings and possessions. These 
first found expression politically, in the newer States, in man- 
hood suffrage (negroes alone excepted), and in the practice of 
making almost all official positions elective, with a short, fixed 
term of service. By contagion these forces were destined to 
invade the older States, and eventually to prevail throughout 
the Union. It was through these innovations that a serious 
dislocation of the older constitutional system was to be ef- 
fected. . . . 

In all of the older States the suffrage was hedged about by 
limitations — ecclesiastical, residential, and pecuniary. . . . 
Eligibility to office was still more narrowly guarded. The 



296 ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 

property qualifications restricted office-bearing- practically to 
the local notables or gentry. . . . 

This entire regime of a restricted suffrage, of class control, 
of appointive offices obtainable only through interest, and of 
permanent incumbency of such positions, was alien to the 
spirit of the new West. Economic equality to the new States 
had been translated into radical political equality. To the in- 
dustrial opportunities which that section afforded were now 
added the proffer of wider political rights and opportunities 
than were enjoyed in the East. Partly by a process of po- 
litical infection, many of the older States began to reshape 
their franchise on more liberal lines. The center of political 
gravity was thus being continually shifted within the older 
States; and by 1824 the new electorate had become conscious 
of its power in the arena of national politics. The Congres- 
sional Caucus which had named the succession to the presi- 
dency for half a century fell into abeyance as the new device 
of nominating conventions was launched. These nominating 
conventions were composed of delegates from the various lo- 
calities, chosen by popular voice. They now named candi- 
dates for the presidency as they had previously done for other 
State and local offices. No sooner had the nominating con- 
vention system been established than virtue departed from the 
Electoral College. Thenceforth its members ceased to exer- 
cise any deliberative or independent volition, and simply 
registered the presidential choice of the party which had 
elected them. Thus the election of the president was finally 
made dependent upon the popular vote; and with a repre- 
sentative hero in the person of Jackson, the new democracy in 
1828 forced the doors of the old regime, and "the political 
control of the gentry, which the Constitution framers had 
counted on as perpetual," passed forever away. The charac- 
ter of the presidential office became radically changed. From 
being an embodiment of executive prerogative, independent of 
popular choice, it became an elective kingship ; and where the 
incumbent is himself a forceful character, like Jackson, or 



ECONOMIC CAUSES AFFECTING FOLITICAL HISTORY 297 

Lincoln, he wields the immense powers of tribunative au- 
thority. 

It cannot in fairness be denied that this transformation of 
our constitutional system had likewise a very seamy side. 
The spoils system which had already infected local politics 
was now introduced into national politics, and wholesale pro- 
scriptions of office-holders became the rule when the opposi- 
tion party came into power. The envious traits of democracy 
Avere so played upon, that the possession of even moderate 
wealth became a positive obstacle to a political career. 
Moreover, in its haste to take the government out of private 
hands, and to subjugate the old hereditary bureaucracy, the 
new democracy had created a vast multitude of elective of- 
fices with short official terms; and some enginery was neces- 
sary to organize the frequent nominating conventions, and to 
manage the complicated business of frequent elections. As a 
result, a new set of party managers, a sort of outside unofficial 
magistracy, — the so-called Machine, a body unknown to the 
law, and subsisting originally on the spoils of offices, — became 
a permanent fixture. Thus the original economic equality in 
the new "West had transformed the older constitutional system 
of class rule into one based practically on universal suffrage. 
It had made the political organization or Machine national in 
its extent of power. It had made the president a popular 
tribune; but it had dislodged an enormous mass of social 
debris, — a result which is often the price that must, tem- 
porarily at least, be paid even for a peaceful revolution. 

II. Slavery and free labor. In the original Southern 
States, and in the new States to the south of the Ohio Eiver, 
economic life and development had been profoundly modified 
by negro slavery. In earlier colonial times slavery had pre- 
vailed in all the colonies; but the negro cannot thrive in the 
rigorous climate of the farther North, and has always been 
numerically a negligible element in its population. For in- 
tensive farming, as for mechanical labor, recjuiring skill, the 
negro had been found to be a costly laborer. These causes, 



298 ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 

reinforced by humanitarian views, led to the early and easy 
abolition 'of slavery in the North. In the South, conditions, 
both climatic and economic, were different. The black could 
and did increase and multiply in that region. The cultiva- 
tion of tobacco on the seaboard by negro labor was at the out- 
set immensely profitable, the negro's lack of skill being offset 
by the unparalleled richness of the soil and by the wasteful 
system of soil-exhaustion. But as this process of earth- 
butchery about reached its limit, it seemed for a time likely 
that economic causes would cooperate with the humanitarian 
sentiment, originally very prevalent amongst the Southern 
gentry, against the slave system. At the same time, the 
numerous negro population of the South rendered extrication 
from the impasse difficult in the extreme. Removed often by 
only a generation from primitive African savagery, they were 
clearly untrained for self-rule or for immediate political 
equality with the whites. Slavery with all its drawbacks was 
essentially a system of government, and an effective alternative 
which would have afforded security to the whites and subsist- 
ence to the negro seemed practically unattainable. It ap- 
peared for a time not impossible that the moribund system 
might develop into the mild patriarchal rule of a primitive 
agricultural state. But the invention of the cotton-gin in 
1793 gave slavery a new and undreamed-of lease of life. 
Hitherto only cotton of the long staple had been grown, and 
that only in the tide-water sections. The cotton-gin made 
profitable the cultivation of the short-staple variety, and 
opened the vast unoccupied upland of the South to cotton 
culture. The planter with his gang of slaves penetrated the 
Southern wilderness, moving in parallels to the white pioneer 
and settler on the North and West. The early economic com- 
plexion of the South was thus irretrievably fixed by slavery. 
Free labor would not betake itself to a section where slavery 
had stamped an odium on manual toil, and the subsequent 
stream of European immigration left the South untouched. 
The two westward currents finally converged in the border 



ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 2!»9 

States of the West, and first iu Kansas the free settlers and the 
slave-owners contended for the territory in question. The 
contest grew until it involved the nation in civil war; and 
eventually the arbitrament of war swept slavery away alto- 
gether. The ultimate economic result of the war upon the 
South, impoverished and exhausted by the struggle, was re- 
generative. The deeps of its industrial stagnation were 
stirred, and its isolated homogeneity was destroyed. Manu- 
factures and commerce have invaded its territory and diversi- 
fied its occupations, so that eventually its economic structure 
will conform closely to that of the other sections of the nation. 
It is true that the legacy of slavery still persists in the South 
in the shape of sharp race antagonism. What the outcome of 
that situation will be no one can say. Racial amalgamation 
is so improbable, and, if possible, so incredibly distant, that 
the hypothesis may be dismissed as beyond the scope of present 
inquiry. Political equality was conferred on the negro by 
amendments to the Federal Constitution, but its denial in 
practice only indicates that, as a solution of the race question, 
it was an untimely step. There is unfortunately not very 
much to be anticipated from the speedy growth of the black 
in wealth ; for while a few negroes have prospered individu- 
ally, the race as a whole has hardly shown aptitude sufficient 
to warrant belief in its power as a permanent competitor with 
the Avhite in many occupations. Even in cotton-planting, the 
recent Italian immigrant is, in some sections, ousting the 
negro tenant-farmer from the land. The most that a sane 
optimism can reasonably hope is, that a remnant may be 
trained so as to hold their own as small cultivators, artisans, 
and servants, and that white immigration to the South may 
very appreciably lessen the relative proportion of the blacks to 
the entire population. Recent censuses give some consider- 
able color to this latter contingency. If the negro individii- 
ally shows remarkable talent, recognition of his achievement 
is bound to follow, and it would be wrong as well as im])Os- 
sible in the long-run to withhold it. But the deep-seated ra- 



300 ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 

cial antipathy that so often leads a white mob of the South, 
incensed at negro brutality, to acts of inhumanity that make 
civilization a mockery, is only an index of the cancerous na- 
ture of the race problem in our Southern States. 

III. Capitalistic consolidation and class antagonism. At 
the close of the Civil War, in 1865, the remaining free public 
lands of the West greatly facilitated the disbanding of the 
Northern army. But a decade later, by the time that the 
Southern States were again represented in Congress, and 
the war's results had been embodied in constitutional amend- 
ments, the available land of the West was practically ex- 
hausted, and the frontier of settlement had disappeared. 
New public issues of a progressively economic character 
emerged, and were to be canvassed often with rancor, now that 
free lands served no longer as an absorbent of social discon- 
tent. 

It was the beginning of a period of recoil and readjust- 
ment. Population was losing some of its fluidity, and friction 
was developing. The center of population was no longer 
shifted rapidly towards the Pacific, moving tardily in the last 
census decade (1890-1900) only fourteen miles to the west- 
ward. Tendencies that heralded the approaching industrial 
maturity of the country multiplied. The urban population 
gained steadily on that of the rural districts, and by 1900 
towns of 8000 or over contained fully one-third of all the 
inhabitants. The first manifestation of unrest centered about 
financial and monetary heresies, such as the agitation for the 
permanent inflation of the currency; and the agrarian com- 
munities of the newer sections rallied to the support of this 
and kindred proposals. The so-called Granger or anti-rail- 
road legislation, prevalent in the same section, was an index of 
a newly awakened hostility to the rapidly growing transporta- 
tion interest. By 1880 the phenomenon of industrial con- 
solidation began to attract attention. In cotton, woolen, and 
iron manufactures, the number of plants either diminished 
absolutely from decade to decade, or showed an inconsiderable 



ECONOMIC CAUSES AFFECTIiNG POLITICAL HISTORY 301 

increase by no means proportionate to the growtli of popula- 
tion. Concurrently with this check in the increase of the 
number of establishments, the average capital investment, the 
annual output per plant, and the average number of em- 
ployees per factory, grew prodigiously. The dearth of profits 
which vigorous competition had brought about had given rise 
to attempts at consolidation in certain industries; an-d the 
virtual monopoly of refining sugar and petroleum, originally 
under the trust form of organization, was evident as early as 
1880. Both the organization of industry upon a' grand scale, 
and the ampler means at the disposal of master manufacturers, 
quickened the pace and multiplied the economies of produc- 
tion. 

On the other hand, labor associations after the Civil War 
grew in number, and took on a radically different character. 
Instead of transitory quasi-social guilds of local craftsmen, 
they became permanent unions, militant in aim, and con- 
federated with hundreds of similar organizations pursuing a 
common purpose. Beginning first in 1877, strikes of such 
magnitude and violence occurred as to simulate territorial in- 
surrections and to require the intervention of the Federal 
army. 

The legislative mill began to grind out statutes of a signifi- 
cant and far-reaching economic purport. In Congress the 
Chinese Exclusion Act came in 1882. The law prohibiting 
the importation of laborers under contract for hire followed 
in 1885. Federal regulation of railroads by the Interstate 
Commerce Commission began in 1887, and the Sherman Anti- 
Trust Act followed in 1890. Even after the tardy resump- 
tion of specie payments in 1879, the forces of discontent, es- 
pecially among the agrarian communities of the West, battled 
persistently until 1896 for inflation, under the guise of free 
silver coinage. . . . 

The growth of colossal private fortunes began to excite 
formidable unrest. . . . [Omitted here is the discussion of 
the then current political issues and policies] . 



302 ECONOMIC CAUSES AFFECTING POLITICAL HISTORY 

I have tried to indicate, first, how the prevalence of natural 
economic opportunities created for a time in the belt-line of our 
expanding national power a fiercely equalitarian society, and 
how this society wrested political control from an older 
hereditary aristocracy and deposited it in the hands of the 
masses. The cost of this progress was registered in a fluctuat- 
ing civil service, and in a permanent and costly political or- 
ganization which has too often succumbed to corrupting in- 
fluences. Second, I have sought to show how slavery stamped 
indelibly its economic character upon the South, until the 
clash of the two opposed industrial systems in the border 
States of the West precipitated civil war and led to the even- 
tual abolition of slavery. This undoubted gain was purchased 
only at the cost of the acute race-antagonism which still 
agitates the South. Lastly, I have tried to outline the results 
of the more systematic exploitation of wealth in a territory 
whose frontier has disappeared, — a process which has largely 
proceeded from the concentration of capitalistic control, which 
has issued in unprecedented opulence, difi^used in some meas- 
ure throughout the greater part of the population, and yet at- 
tended by the unfortunate growth of class-antagonisms and by 
pervasive distrust of our party organizations. Each move- 
ment has shown a temporary social loss, and no less surely 
there has emerged in each a correlative social gain. 



GOLD PEODUCTION, 1890-1910 

[The Director of the Mint in his annual report for the year 1011, 
discusses the recent increase in the output of gold, the manner and 
extent of its absorption into monetary and industrial uses, and some 
of the probable changes in the future. Omitting many details of the 
evidence, we give here the most essential parts of the discussion. 
( Annual Keport of the Secretary of the Treasury on the State of the 
Finances, June 30, I'Jll, p. 266.)] 

The world's absorption of gold and the rise of prices. 

The enormous increase in the production of gold which has 
occurred in recent years, and the relationship that may exist 
between these enlarged supplies and the advancing prices of 
commodities, has awakened a world-wide interest among 
economists. It has seemed for this reason worth while to 
undertake the task of tracing the yield of the last two decades 
into actual use for the purpose of discovering wdiere it has 
been located and how much of it has been placed where it 
would probably exert an influence for the expansion of credit, 
the stimulation of industry, and the rise of prices. 

The new golden era may be said to have had its beginning 
with the discovery of the Transvaal deposits in South Africa 
and the development of the cyanide process, which was first 
used successfully in the treatment of the Transvaal ores, but 
has since contributed in an important degree to the increased 
production of nearly all gold-mining districts. . . . 

The production of the world for [three of] the ten years 
from 1890 to 1899, inclusive, and for [three of] the eleven 
years from 1900 to 1910, inclusive, is given in separate tables 
and the yield of the three principal producing countries is also 
shown separately. The African product is mainly from the 

303 



304 GOLD PRODUCTION 

Transvaal but includes Ehodesia and lesser fields which alto- 
gether had in 1910 a production of $19,592,679. [Tables ab- 
breviated]. 

GOLD PEODUCTION — FIKST PERIOD — 10 TEARS, 1890-1899, IN MILLION 

DOLLARS. 

United 

Years. Africa. States. Australia. Others. Total. 

1890 9.8 32.8 29.8 40.6 113.1 

1895 44.7 46.6 44.7 62.6 198.7 

1899 73.0 71.0 79.3 83.3 306.7 

Total 10 years 420.0 467.0 458.2 614.5 1959.9 

Average 42.0 46.7 45.8 61.4 195.9 

GOLD PRODUCTION — SECOND PERIOD — 11 YEARS, 1900-1910, IN MILLION 

DOLLARS. 

United 

Years, Africa. States. Australia. Others. Total. 

1900 8.6 1 79.1 73.4 94.2 255.6 

1905 113.2 88.1 85.9 92.9 380.2 

1910 175.1 96.2 65.4 117.7 454.7 

Total 11 years 1123.9 955.3 862.7 1095.5 4037.6 

Average 102.1 86.8 78.4 99.5 367.0 

By way of accounting for the distribution and employment 
of this product, . . , [several tables are given below]. 

Gold used in the arts. It is confessedly a difficult task to 
make a satisfactory estimate of the amount of gold consumed 
in the arts and industries, for the reason that only a few 
countries have made it the subject of official inquiry. Evi- 
dently, however, it is necessary in any consideration of the 
influence of the new supplies of gold upon prices to make 
some allowance for the portion of these supplies or of the 
existing monetary stock that has been diverted to industrial 
uses. . . . 

[Page 272] The following is the bureau's estimate in de- 
tail for the consumption in the arts and waste of gold for 
the calendar year 1910, excluding Asia and Africa : 

[1 Note effect of the Boer War.] 



GOLD PRODUCTION 305 

world's industrial COiNSUMPTION, 1910. 

Countries. Gold (value). 

United States $ 33,756,500 

Germany 15,5.36,000 

France ' 16,836,000 

Great Britain 18,000,000 

All otlier countries 27,720,000 

Total 11 1,848,500 

Some writers oi' repute in the past have made large esti- 
mates for the abrasion which coins suffer under use. This 
was doubtless a larger factor in former times than it is now, 
the principal use of coin in modern monetary systems being 
to serve in reserves against paper money in circulation. . . . 

Exports to Asia. There are practically no figures for the 
absorption of Western or Central Asia. The statistics for 
China are of little value, but on the whole there is a move- 
ment outward, showing that the production, possibly aug- 
mented by unrecorded imports, exceeds the recorded imports. 

In statistics of the precious metals India is the most im- 
portant coimtry of Asia, and has long been one of the most 
important in the world. The Government of India has ad- 
vised this bureau that the uncoined gohl imported into that 
country might be considered to be used for ornaments and in 
manufactures. This amounted in 1910 to $47,026,698. 

The movement to India deserves to be treated in a class by 
itself. A large part of the gold and silver that goes there 
sinks out of sight, and whether it is made into ornaments 
or buried in the ground, is withdrawn at least in large part 
from the monetary stock of the world. Some of it may be 
brought out in periods of emergency, such as times of famine, 
and reconverted into money, but in the past a steady stream 
of the precious metals has moved into India and disappeared 
as a factor in the commercial world. Sir James "Wilson, 
K.C.S.I., for many years in the Government service in India, 
in a comprehensive address delivered before the East India 
Association of London, on June 14, 1911, reported the net 

20 



306 GOLD PRODUCTION 

imports of gold by India since 1840 at about $1,200,000,000, 
or one-tenth of the world's production in that time. . . . 

Sir James Wilson, in the address alluded to, sums up his 
explanation by saying : 

As for India, her prosperity is steadily advancing. Great numbers 
of her people prefer to spend their savings on gold rather than on 
other commodities. The probability is that altogether apart from 
questions of currency, India will continue to absorb gold in ever- 
increasing quantity. ... 

Egyptian absorption [page 275]. The Egyptian situation 
is somewhat like that of India. The country is on a gold basis, 
and for thirty years has been steadily taking gold in the set- 
tlement of its trade balances. The high price of cotton in 
' recent years and the increasing production of the country 
explains the trade balances, but there is some mystery about 
the way the gold disappears from view. It does not enter 
into bank stocks, and it is difficult to understand how a 
country of its size and population and in which the masses 
of the people are so poor can absorb so much gold coin. In 
the first period under review the customs records show net 
imports of $58,670,000 and in the second period $146,660,000. 
For the year 1910 they were $30,000,000. 

Some light is shed upon the situation by the following state- 
ment in an address by Lord Cromer, made in London in 1907 : 

A little while ago I heard of an Egyptian gentleman who died 
leaving a fortune of £80,000, the whole of which was in gold coin 
in his cellars. Then, again, I heard of a substantial yeoman who 
bought a property for £25,000. Half an hour after the contract was 
signed he appeared with a train of donkeys bearing on their backs 
the money, which had been buried in his garden. I hear that on 
occasion of a fire in a provincial town no less than £5,000 was found 
hidden in earthen pots. I could multiply instances of this sort. There 
can be no doubt that the practice of hoarding is carried on to an 
excessive degree. (The Statist, Nov. 2.) ... 

The movement to South America [page 276] . During the 
first period there was little change in the gold stocks of South 



GOLD PRODUCTION 307 

America, but in the second period there was an important 
movement to several countries. Two in particular, viz., Ar- 
gentina and Brazil, drew heavily for the accumulation of 
reserves as a basis for their paper currencies. This policy 
in Argentina is being carried out under the law of November 
4, 1909, and in Brazil under an act that went into effect 
December 2, 1906. The total stock of gold in Argentina at 
the close of the calendar years 1889 and 1899 was estimated 
in oi¥ieial returns to this bureau at $13,000,000 and $25,- 
000,000, respectively; the stock in the conversion fund and 
in the Bank of the Nation on the 31st of December, 1910, was 
$244,400,000. 

No estimates are available for the amount of gold in mone- 
taiy use in Brazil in the years 1889 or 1899, but it was prob- 
ably not in excess of $10,000,000 at either time. On Decem- 
ber 31, 1910, tlie stock in the conversion fund was $98,500,000. 

According to the customs records of Great Britain and the 
United States, Uruguay has imported large amounts of gold. 
Their records indicate an excess of exports to Uruguay over 
imports from that country of $128,000,000. There are no 
published figures for Uruguay either of customs records or 
bank reserves. The country is on a gold basis, but its pop- 
ulation, banking business, and trade are all too small for such 
an absorption of gold. Probably most of these imports ulti- 
mately reached Argentina. 

There have been small gains in other South American coun- 
tries and it is prnl)ably fair to estimate that altogether South 
America during the second period has increased its gold hold- 
ings by the amounts now in the conversion funds of Argentina 
and Brazil, or, in round figures, $343,000,000. . . . 

Summary of foregoing [page 277]. During the first pe- 
riod Asia and South America took comparatively little gold. 
Where they had any metallic standard or currency, it was 
silver, and for many countries the currency was inconvertible 
and depreciated paper. 

Reviewing the second period, in which the production of 



308 



GOLD PRODUCTION 



gold amounted to approximately $4,037,000,000, the following 
amounts appear to have been diverted from monetary use, or 
so employed that apparently they would not be directly effect- 
ive upon world prices: 

Industrial consumption $ 958,000,000 

India 433,000,000 

Egypt 146,000.000 

Japan 69,000,000 

South America 343,000,000 

Mexico 28,500,000 



Total 1,977,500,000 

The total represents nearly one-half of the production of 
the period. The demand outside of the old circle of gold- 
using nations is a growing one, greater in the last half of the 
period than in the first, still increasing in the countries named 
and spreading to other countries that in the past have not 
been accustomed to use gold as money. . . . 

GOLD STOCKS IN SIGHT IN EUROPE, THE UNITED STATES, CANADA, AUS- 
TRALASIA, AND SOUTH AFRICAN COLONIES. [TABLE COMPKEST] 

IN MILLION DOLLARS. 



Banks and treasuries. 


Dec. 31 
1889 


Dec. 31 
1899 


Dec. 31 
1910 


Increase 

1899 over 

1889 


Increase 

1910 over 

1889 


Total United States. . 

Total Europe 

Total Australia, Can- 
ada, S. Africa 


423 
914 

102 


683 
1,601 

161 


1,410 
2,464 

343 


259 
686 

59 


726 
863 

181 


Grand total. . . 


1,440 


2,447 


4,218 


1,006 


1,771 



CIRCULATING NOTES AND LOANS AND DISCOUNTS. 



Institutions. 


Notes 
Dec. 31 
1889 


in eircul 

Dec. 31 

1899 


ation 
Dec. 31 
1910 


Loans 
Dec. 31 
1889 


and disc 

Dec. 31 

1899 


ounts 
Dec. 31 
1910 


Total Europe 

Total United States 

Total Australia, Canada, S. 
Africa and Japan 


2.818 
126 

145 


2,973 
199 

197 


4,324 
684 

398 


3,031 
3,842 

909 


4,184 
5,167 

1,351 

10,704 


5,146 
12,855 

2,591 


Grand total 


3,089 


3,369 


5,407 


7,782 


20,593 



GOLD PRODUCTION 309 

Relative value of factors in the calculation. In consider- 
ing the figures for j)rodiiction, consumption, and distribution, 
those for the holdings of banks and treasuries are, of course, 
of first importance, there being no element of uncertainty in 
them. Next to them in order of credibility are the figures 
for production, which for all the more important mining dis- 
tricts are reported by responsible authorities. The figures 
for consumption in the arts must be allowed a larger margin 
for error, and have been fully explained. The official state- 
ments of the exports and imports of different countries, which 
might be supposed to be from trustworthy records, in fact 
must be used with great caution, as they are frequently con- 
tradictory, or inconsistent with more credible evidence. . . . 
It is generally understood that exports are given a less strict 
surveillance than imports, and that movements by sea are 
more accurately recorded than those between adjacent coun- 
tries by rail. 

The first period, 1890-1899. The production of the first 
period was estimated in round numbers at $1,960,000,000, 
which from the best data available seems to have been dis- 
tributed about as follows: 

Industrial arts $ 570,000,000 

Banks and treasury of United States 260.000,000 

European banks 686,800,000 

Banks of Canada, Australasia, and South Africa 59,700,000 

Total 1,576,500,000 

Other banks, circulation, private holdings, etc... 383,500,000 

Total 1,960,000,000 

. . . The production of gold during this decade was approx- 
imately $900,000,000 greater than in the preceding one, and 
the increase was largely taken for the reorganization of mon- 
etary systems and for strengthening bank reserves. The gold 
reserves of European banks increased 75 per cent., while the 
paper issues increased less than 5 per cent. The world over 
it was a decade in which enterprise was at a low ebb, although 
the years 1890-1892 were very prosperous in the United 



310 GOLD PRODUCTION 

States, and there was a general revival in the last two years 
of the period. Prices reached the lowest 10-years level for 
which records are existent. 

Second period, 1900-1910. According to the figures given 
the distribution of new gold during the second period was 
apparently about as follows : 

Industrial consumption $ 958,000,000 

India 433,000,000 

Egypt ■. 146,000,000 

Bank of Japan 69,000,000 

Banks and conversion funds of Soutli America . . 343,000,000 

Banks of Mexico 28,500,000 

Banks and treasury of the United States 726,800,000 

Banks and treasury of Canada 85,700,000 

Banks, Australasia and South Africa 95,600,000 

Banks of issue of Europe 863,200,000 

Total 3,748,800,000 

Other banks, circulation, private holdings, etc... 288,200,000 

Grand total 4,037,000,000 

Again, the amount unaccounted for, and which is consid- 
ered to have been gained by other banks or to have entered 
into circulation and private hoards, may seem small for the 
volume of production. In the United States a calculation 
based upon coinage and the exports and imports of domestic 
coin, indicates a net gain of gold coin in circulation of $71,- 
000,000. It is to be considered that there is an undoubted 
tendency in all countries to use banks more than formerly, 
and it is probable that the stock of gold in banks has been 
recruited not only from new production but to some extent 
from gold heretofore held in private hoards and out of use. 
In every country the younger generation to whom these hoards 
descend is likely to put them to some use. 

The table shows that banks of issue in Europe in the second 
period increased their gold stocks by about 50 per cent, and 
their note issues about the same. Their advances or loans 
and discounts increased about 25 per cent., or by a lower per- 
centage than during the previous period. 

An examination of the individual gains of these institu- 



GOLD PRODUCTION 811 

tions will show that a large amount of the new gold taken 
by Europe has been devoted to the same purpose as in the 
preceding period, to wit, the rehabilitation of monetary 
systems and to strengthen and buttress the institutions of 
issue. ... 

The outlook for gold production [page 286]. It has been 
a theory of writers on the subject that the rise of commodities 
and wages would automatically check the production of gold, 
thus providing its own corrective, but the gold-mining indus- 
try furnishes an illustration of how invention, organization, 
and the use of capital are able to accomplish a reduction in 
costs when every factor in the calculation shows an advancing 
tentlency. The cost of handling ore and extracting gold in 
the Transvaal mines per ton of ore treated has steadily de- 
clined and made a new low record in 1910. 

The cost of mining gold, however, unless revolutionary 
changes are accomplished, does not have as great an influence 
upon production as in the case of common commodities for 
which there is an unlimited supply of raw materials. It is a 
fact already alluded to in this paper, and familiar to all who 
have followed developments in the gold-mining industry, that 
the great increase in the output since 1890 has been due in the 
main to two contributing discoveries that were directly re- 
lated to each other, to wit, the discovery of the Transvaal 
field and the discovery of the cyanide process. Of course, it 
is possible at any time for both of these discoveries to be 
repeated in others as important, but until such new discov- 
eries are made there will be no similar leap in production. 
Since 1906 the rate of production in the United States, in- 
cluding Alaska, has been practically at a standstill. There 
is nothing to indicate a considerable change in either direc- 
tion. Australasia has been on a declining scale since 190.':}, 
the annual yield being now about $28,000,000 below the high 
year. Russia, Canada, and Mexico have shown an increase 
of late about sufficient to offset Australasia. The Transvaal 
has been pushed up to a new record in 1911, but the deposit is 



312 GOLD PRODUCTION 

well defined, and the increased production of recent years has 
been due to an enlargement of the crushing plants rather 
than to any extension of the field. This policy of increasing 
the investments in order to exhaust the mines more rapidly 
has probably gone nearly as far as it can be profitably fol- 
lowed. . . . 

While it is not likely that the Rand will show an apprecia- 
ble decrease for a good many years to come, it is probably not 
far from the maximum output. There has been no gain in 
the world's production for some years except that made by 
the Eand. 

The figures given in the foregoing tables show how the 
hitherto undeveloped countries, outside of the old circle of 
industrial nations, are reaching out for a share of the new 
supplies. As a river rises in flood the water creeps over its 
banks, backs up its tributaries, fills up adjacent low places, 
and spreads out over expansive areas of lowlands, with the 
result that vastly more water is required to raise the level at 
the high-water stage than when the river is low. A some- 
what similar distribution of new gold is going on and in 
prospect. 

The historical parallel [page 288]. Gold was discovered 
in California in 1848 and in Australia in 1851, and by 1852 
these new fields were producing together over $100,000,000 
per year. The first noticeable effect was an accumulation of 
gold in the Bank of England, which reduced its discount rate 
to encourage borrowing. The first industrial effect was in the 
shipping and shipbuilding industry, due to the demands of an 
increasing trade with the United States and Australia, but 
•the revival soon extended to the building trades and thence to 
all branches of industry, and spread over Europe. 

By this time apprehensions were expressed as to the dis- 
turbing effects upon monetary systems of the threatened in- 
undation of gold. Holland and Belgium stopped coining it. 

About this time counteracting influences began to operate, 
and in view of the present movement of gold to India it is an 



GOLD PRODUCTION 313 

interesting fact that the most inii)ortant modifying influence 
at that time M'as the movement of specie to India. . . . 

Professor Stanley Jevons, a contemporary writer of liigh 
repute . . . writing in 1865 and reviewing prices since 1849, 
said: 

If we compare prices now (March, 1865) with what they were at 
their lowest in 1849, we tind tliere has been a rise of 21 per cent. 
If we take tlie average of 1845-1850 as our standard of comparison, 
the rise is 11 per cent. The real permanent rise due to the gold 
discoveries is doubtless something between these, or probably nearer 
tlie higher limit, 21 per cent. The gold discoveries have caused tiiis 
rise of price. They have also neutralized the fall of prices which 
might have been expected from the continuous progress of invention 
and production, but of which the amount ia necessarily unknown. 



THE NATIONAL BANKS 

[The Comptroller of the Currency, an officer of the Treasury De- 
partment of the U. S., gives in his annual report much information 
not only about the national banks, but about State, private, and 
savings banks in this country and in foreign countries. The following 
are a few extracts from the report of 1910.] 

Organization of national banks. Under section 5133 of 
the Revised Statutes the organization of national banking 
associations by any number of persons, not less than five, 
is authorized. This section provides that the incorporators 
shall enter into articles of association specifying in general 
terms the object for which the association is formed and a 
copy thereof forwarded to the Comptroller to be filed and 
preserved in his office. The following section provides for 
the execution of an organization certificate by those who have 
entered into articles of association. This certificate is re- 
quired to be acknowledged before a judge of some court of 
record or a notary public and transmitted to the Comptroller. 
When these documents have been filed with the Comptroller 
the association becomes a body corporate, but with powers 
limited to transaction of business incidental to organization 
until the issuance of the Comptroller's certificate authorizing 
the association to begin the business of banking. The law 
further requires the collection and certification of payment 
of at least 50 per cent, of the authorized capital stock and 
the deposit of a specified amount of United States registered 
interest-bearing bonds, and authorizes an examination for the 
purpose of determining the amount of money paid in on ac- 
count of capital stock and whether all requirements of law 
in relation to organization have been met. 

As the law, however, specifically confers upon the Comp- 

314 



THE NATIONAL BANKS 315 

troller discretion with respect to approval of the name selected 
for an association, the course of procedure under the estab- 
lished rules of the office is to re(iuire the submission of a 
formal application for authority to organize an association 
wherein is stateil the title desired, location of the bank, cap- 
ital stock, the signatures of the applicants given, accompanied 
by advice in regard to the business and financial standing of 
the applicants, number of shares to be subscribed for, and 
the previous banking experience, if any, of the applicants. 
Indorsements are required with respect to the character and 
standing of the applicants, the population of the place at 
which it is proposed to organize the bank, and an expression 
of opinion with respect to prospects of success of the associa- 
tion if chartered and conservatively managed. 

Prior to the disposition of an application a copy thereof is 
sent to the national-bank examiner, to the member in Con- 
gress for the district in which the bank is located, and to 
the superintendent of the State banking department, with 
reiiuest for information with respect to the character and 
standing of the applicants, the existing demand for a bank at 
the locality, and an expression of opinion as to whether suc- 
cess is probable. 

Applications for authority to convert State banks into 
national banking associations are made by the directors, and 
each case of this character is investigated for the purpose of 
determining whether the bank has been conducted in con- 
formity with law, its measure of success, and also as to the 
character of its assets and general business. 

In view of the fact that bank stock is generally regarded 
as a very desirable investment, the organization of banks, 
both national and State, has been very active during recent 
years, and it has been shown to be evident to both i'ederal 
and state authorities that many banking institutions are or- 
ganized, or organization att<'mpted, without giving due con- 
sideration to their demand oi' tlicir pi-ospects of success. As 
far as jjossible the state autliorities are now acting in bar- 



316 THE NATIONAL BANKS 

mony with the Comptroller in the upbuilding of banking con- 
ditions by preventing the organization of banks where the 
demand therefore is not apparent or where organization is at- 
tempted by those whose character and standing are ques- 
tionable. 

During the year ended October 31, 1910, 425 applications 
were received for authority to organize national banks, in- 
cluding applications to convert state banking institutions. 
Approval was granted in 315 cases and there were 74 rejec- 
tions, the cause of the latter being, first, existence of ample 
banking facilities at the place; second, population and busi- 
ness too limited to warrant success; third, character of the 
applicants and of others interested. Kejections of applica- 
tions to convert were based, primarily, upon information re- 
ceived to the effect that the management had been neither 
in conformity with law nor successful. 

Charters were issued during the year to 311 associations 
having aggregate authorized capital stock of $30,760,000, and 
from the date of the passage of the national-banking act in 1863 
to October 31, 1910, charters to the number of 9883 were 
granted. At the close of the current year 7218 banks were in 
active operation, 2176 having been placed in voluntary liqui- 
dation and 489 in the charge of receivers for liquidation of 
their business in the interest of depositors and other cred- 
itors. Included in the total number of charters granted were 
1571 to institutions which were conversions of state banks. 
The capital of these converted banks at date of entrance into 
the national banking system was $330,665,928. 

Under the provisions of the act of March 14, 1900, national 
banks to the number of 2953, with aggregate capital of $76,- 
930,500, were organized, the average capital being approxi- 
mately $26,000. Since the date of the act in question, 1666 
banks were organized under the law of 1864, their aggregate 
capital being $214,912,800 and the individual capital $50,000 
or more. It further appears that 652 of the banks chartered 



THE N'ATI()XAI> I'.ANKS 317 

ill lliis period wore foiivcrsions of stale l);mks, their ea[)ilal 
beiiii:: $51,445,800 ; 140;} reoryaiii/.ations of state or private 
banks, with aggregate eai)ital of $93, 987,000 ; and 2564 pri- 
mary organizations, the capital represented being $146,410,- 
500. Tlie total numl)er of banks organized from March 14, 
1900, to the end of the current year was 4619 with aggregate 
capital of $291,843,300, exceetling by 1002 the number of 
banks in active operation on j\Iarch 14, 1900. The average 
number of banks organized monthly from March 14, 1900, to 
October 31, 1907, was approximately 40; the average in 1908, 
27; in 1909, 25; and in 1910, 26. 

Reserves and deposits. The original law reciuired the 
maintenance of a reserve on deposits in all respects but an 
exception was made with respect to United States deposits in 
the act of May 30, 1908. In determining the amount of 
deposits on which reserve is required to be held there is first 
ascertained the net balance due to other banks, to which are 
added dividends unpaid, individual deposits, and deposits of 
United States disbursing officers. From this gross amount 
the following deductions are allowed : Checks on other banks 
in the same place, exchanges for clearing house, bills of other 
national banks, and amount due from the Treasurer of the 
United States. The resultant amount of these deductions 
represents the sum of the deposits upon wdiich is based the 
required reserve; that is, 25 per cent, for reserve city banks 
and 15 per cent, for all other banks. The amount of the 
reserve being determined, there is deducted therefrom the 
5 per cent, redemption fund which the law authorizes to be 
counted as a part of the reserve. The 25 per cent, reserve 
required by central reserve city banks must consist of lawful 
money in bank; in other reserve city banks at least 121/2 per 
cent, in bank, with a limit of 121/0 per cent, with approved 
agents in central reserve city banks. Banks located else- 
where than in reserve cities are recjuired 1o maintain a reserve 
of 15 per cent., of which at least two-fifths or 6 per cent., must 



318 THE NATIONAL BANKS 

be in cash in bank and three-fifths, or 9 per cent., may be on 
deposit with correspondents in central or other reserve city 
banks. 

While occasionally a bank is deficient in the amount of 
reserve required, the aggregate requirement for all banks is 
rarely deficient. . . . 

The entire reserve required to be held by central reserve 
city banks is in lawful money with the exception of the re- 
demption fund, which averages approximately one-fourth of 
1 per cent. In other reserve city banks the lawful money 
reserve slightly exceeds 51 per cent., the amount available 
with reserve agents 47 per cent., and the redemption fund 
slightly less than 2 per cent. The reserve held in lawful 
money by country banks averages 45 per cent, of the total 
reserve held, tlie amount available with reserve agents aver- 
aging approximately 50 per cent., and the amount in redemp- 
tion fund slightly in excess of 4 per cent. Taking the coun- 
try as a whole, the lawful money in bank is approximately 
64 per cent, of the total reserve held, amount available with 
reserve agents 34 per cent., and the redemption fund 2 per 
cent. 

Profit on national-bank circulation. In computing the 
profit on the issuance of national-bank circulation it is as- 
sumed that the entire amount based on the bond deposit is 
in circulation and no deduction is made by reason of the fact 
that a reserve fund of 5 per cent, on the issues is required to 
be maintained in the office of the Treasurer of the United 
States for the redemption of notes as presented at the de- 
partment, as the redemption fund is permitted by law to be 
counted as a part of the bank's lawful reserve. In the cal- 
culation appearing in the appendix to this report, the profit 
is stated, based on the average net price of bonds, monthly, 
during the year ended October 31, 1910, and is computed 
separately on deposits of 2 per cent, consols of 1930, the 4 per 
cent, loan of 1925, and the 2 per cent. Panama Canal Loan. 
Money is assumed to be worth 6 per cent, and the measure of 



THE NATIONAL BANKS 319 

profit is the difference between the net receipts from the cir- 
culation loaned at 6 per cent, and interest that would be ob- 
tained on the cost of the bonds loaned at the same rate; in 
other words, from the interest received on the bonds at the 
rate provided therein, and the interest on circulation loaned 
at 6 per cent., are deducted the taxes on circulation, expense 
incident to the obtaining of circulation, i.e., plates, redemp- 
tion charues, etc., together with the sinking fund and from 
the difference is deducted the interest on the cost of the bonds 
to show the profit. 

During the year in question, 2 per cent, consols of 1930 
ranged in price from a minimum of 100.505 on November, 
1909, to a maximum of 101.24 in September, 1910, and on the 
same dates the profit on circulation in excess of 6 per cent, on 
the investment was 1.387 per cent, and 1.313 per cent., re- 
spectively ; that is to say, on the issue of $100,000 of circula- 
tion on the security of 2 per cent, consols of 1930, at a cost 
of 100.505 the profit on circulation in excess of 6 per cent, on 
the investment was $1349.39, and on the bonds at a cost of 
101.24 the profit was $1329.31. 

The highest average net price of 4 per cent, bonds was 
116 693 in November, 1909, and the rate on circulation se- 
cured by bonds of that class was 1.076 per cent. The lowest 
price on these bonds during the year was 114.875 during May, 
eTune, and July, the rate of profit being 1.225 per cent, in 
^fay, 1.220 per cent, in June, and 1.225 per cent, in July. 
The rate of profit, however, reached the maximum of 1.233 
per cent, when the bonds in February were quoted at 114.932. 
The profit on circulation secured by the Panama Canal bonds 
is but nominally in excess of the profit on 2 per cent, consols, 
although in November, 1909, when the Panama Canal bonds 
were quoted at 100.130, the rate of profit on circulation Avas 
greater than on any other class of bonds at any time during 
the year, being stated at 1.426 per cent. 

Earnings and dividends of national banks. While the 
dividend i)eriods of national banks vary, and under the law 



320 THE NATIONAL BANKS 

reports of earnings and dividends are required to be made to 
the Comptroller within ten days after the declaration o£ divi- 
dends, for statistical purposes the reports are abstracted for 
semiannual periods ending December 31 and June 30. In 
the appendix to this report appear the abstracts, by reserve 
cities and States, for the periods ended December 31, 1909, 
and June 30, 1910, Combining these two abstracts, for the 
purpose of showing results for the entire year, it appears that 
the average capital on which dividends were paid was $963,- 
457,549. The average surplus was $630,159,719 and the gross 
earnings $402,655,823.44 against which were charged losses 
and premiums aggregating $38,714,082.62, or 9.6 per cent., 
and expenses of $209,784,251.35 or 52.18 per cent. With 
these deductions the net earnings are shown to have been 
$154,167,489.47, from which dividends were paid to the 
amount of $105,898,622, or 10.99 per cent, on the capital and 
6.65 per cent, on the capital and surplus. The net earnings 
were equivalent to 9.67 per cent, of the capital and surplus. 

The act re([uiring the submission of reports of earnings and 
dividends was not passed until 1869 ; hence the records begin 
with the year ended March 1, 1870, continuing to June 30, 
1910, a period of forty-one years. The average annual net 
earnings of banks during this period are shown to have been 
$71,956,096 and the average dividends $54,198,299, or an 
average rate of 8.98 per cent, on the capital stock. The aggre- 
gate net earnings for the forty-one years are stated at $2,950,- 
199,928 and the dividends at $2,222,130,367. 

National-currency associations. In the annual report of 
the Comptroller of the Currency for 1908 the salient pro- 
visions were published of the act of May 30, 1908, providing 
for the formation of national-currency associations and the 
issue of additional national-bank currency. 

Under this act national-currency associations may be formed 
by any number of national banks, not less than ten, with 
aggregate capital and surplus of at least $5,000,000, and lo- 
cated in contiguous territory. No national bank, however. 



THE NATIONAL BANKS 321 

in;iy he a meiiibiT of a eiUTCMioy association unless it has an 
iuiimi)airod capital and a surplus amounting to at least 20 
per eent. of its capital. It is further provided that to be 
entitled to issue adilitional currency a national bank, a mem- 
ber of the currency association, shall have circulation out- 
standiuii', secured by United States bonds, aggreji^ating not 
less than 40 per cent, of the capital stock. Additional cir- 
culation proviiled by this act may only be issued upon the 
recommendation of the Comptroller and approval of the Sec- 
retary of the Treasury. The maximum circulation issuable 
by a bank on United States bonds, and under authority of 
the act of J\lay 30, 1908, is measured by the capital and sur- 
plus of the bank. 

The officers of a currency association, on behalf of one of 
the bank members, may apply for authority to issue additional 
circulation to an amount not exceeding 75 per cent, of the 
cash value of the securities or commercial paper deposited 
with the association, and upon deposit of state, city, town, 
count}', or other municipal bonds of the character prescribed 
by the act may obtain for issue circulating notes to the extent 
of 90 per cent, of the market value of the bonds deposited. 
The issue of additional circulation on commercial paper, how- 
ever, is limited to 30 per cent, of the unimpaired capital and 
surplus. 

The act contemplates that no additional circulation shall 
be permitted to be issued unless, in the judgment of the Sec- 
retary of the Treasury, conditions in the country at large, or 
in a special locality, warrant such action, and under section 
8 of the act it is made the duty of the Secretary of the 
Treasury to obtain information with reference to the value 
and character of securities authorized to be accepted, and 
from time to time to furnish information to national-banking 
associations as to such securities as would be acceptable under 
the provisions of the act. 

The act further provides for an issue of circulating notes 
and the incorporation of the statement upon their face that 



322 THE NATIONAL BANKS 

"they are secured by United States bonds or other securi- 
ties," certified by the written or engraved signatures o£ the 
Treasurer and Register and by the imprint of the seal of the 
Treasury. They shall also express upon their face the prom- 
ise of the association receiving the same to pay on demand, 
attested by the signature of the president or vice-president and 
cashier. Under this requirement, circulation has been pre- 
pared for every national-banking association, and there is 
stored in the reserve vault of the bureau a stock of incomplete 
currency amounting to $500,000,000. So far, no circulating 
notes, other than those secured by United States bonds, have 
been issued, but all incomplete currency shipped to a bank 
bears the legend quoted. 

On June 30, 1910, the number of national banks reporting 
was 7145, with paid-in capital of $989,567,114 and surplus of 
$644,857,482.82. Of these banks, 5699 had circulation se- 
cured by United States bonds equal to or exceeding 40 per 
cent, of the capital, and 1415 circulation less than that pro- 
portion. 

In less than thirty days after the passage of the emergency- 
currency act a national-currency association was formed in 
the District of Columbia, of which all of the eleven banks iu 
the District were members. The aggregate capital and sur- 
plus of the banks at that time were $5,202,000 and $3,942,000 
respectively. . . . 

While the formation of other currency associations was 
undertaken, none was perfected in a manner acceptable to 
the Secretary of the Treasury until the midsummer of 1910, 
by reason of what were regarded as insurmountable obstacles 
on the part of banks interested. These obstacles, however, 
were in a large measure overcome by a revised construction of 
the law. 

Banking power of the United States. The following table 
shows for 1910 the banking power of the United States, in- 
cluding the island possessions, as indicated by the volume of 
capita], surplus, deposits, and circulation. 



TIIIO NATIONAL 15ANKS 

Amounts in million dollnr.s. 



323 





u 

a 


a 
■ O 


Surplus, 
etc. 


o 
c. 


3 


o 


National banks .... 
Stale, etc., bunks . . 
Non-report iiijr 

buuks 


7.1 jr. 

1.3,'JoO 
4,1GS 


$ 080..'') 
890.3 

77.1 


!? S(il,4 
1,091.0 

28.3 


n $ r.,.T.n.7 
9,990 1 

521.0 


$675.6 


7,868.3 
12,553.6 

627.1 




27,263 


3!1, 957.1 


$1,980.8 


$15,859.5 


$675.6 


21,049.2 



a Includes government deposits. 

b Number of banks and umuunts estimated upon statements from reporting 
private banks. 



PLAN FOR MONETARY LEGISLATION 

[The act of Congress, May 30, 1908, provided for a national monetary 
commission to inquire into and report to Congress what changes were 
necessary or desirable, in tlie monetary system of the United States, 
or in the laws relating to banking and currency. After extended in- 
quiries and public discussion, the Commission submitted its report to 
Congress in January, 1912. The principal defects to be remedied were 
summarized in the following propositions in Senate Document 243 
(Jan. 9, 1912), 62d Congress, 2d session, pp. 6-9.] 

Defects of our present monetary system : 

1. We have no provision for the concentration of the cash 
reserves of the banks and for their mobilization and use wher- 
ever needed in times of trouble. Experience has shown that 
the scattered cash reserves of our banks are inadequate for 
purposes of assistance or defense at such times. 

2. Antiquated Federal and State laws restrict the use of 
bank reserves and prohibit the lending poM^er of banks at 
times when, in the presence of unusual demands, reserves 
should be freely used and credit liberally extended to all de- 
serving customers. 

3. Our banks also lack adequate means available for use 
at any time to replenish their reserves or increase their loan- 
ing powers when necessary to meet normal or unusual de- 
mands. 

4. Of our various forms of currency the bank-note issue is 
the only one which we might expect to respond to the chang- 
ing needs of business by automatic expansion and contraction, 
but this issue is deprived of such qualities by the fact that its 
volume is largely dependent upon the amount and price of 
LTnited States bonds. 

5. We lack means to insure such effective cooperation on 

324 



I'LAX FOK MOXKTAKY I.i:(! ISLATION 325 

the part of banks as is iieeessaiy to protect their own and the 
public interests in times of stress or crisis. There is no 
cooperation of any kind among banks outside the clearing- 
house cities. AVhile clearing-house organizations of banks 
liave been able to render valuable services within a limited 
sphere for local connnunities, the lack of means to secure their 
cooperation or affiliation in broader fields makes it impossible 
to use these or similar local agencies to prevent panics or 
avert calamitous disturbances affecting the country at large. 
These organizations have, in fact, never been able to prevent 
the suspension of cash payments by financial institutions in 
their own localities in cases of emergency. 

G. We have no effective agency covering the entire coun- 
try which affords necessary facilities for making domestic 
exchanges between ditt'erent localities and sections, or which 
can prevent disastrous disruption of all such exchanges in 
times of serious trouble. 

7. We have no instrumentality that can deal effectively 
with the broad questions which, from an international stand- 
point, affect the credit and status of the United States as 
one of the great financial powers of the world. In times of 
threatened trouble or of actual panic these questions, which 
involve the course of foreign exchange and the international 
movements of gold, are even more important to us from a 
national than from an international staudi)oint. 

8. The lack of commercial paper of an established standard, 
•issued for agricultural, industrial, and commercial purposes, 

available for investments by banks, leads to an unhealthy con- 
gestion of loanable funds in great centers and hinders the 
development of the productive forces of the country. 

9. The narrow character of our discount market, with its 
limited range of safe and profitable investments for banks, 
results in sending tlie surplus money of all sections, in excess 
of reserves and local demands, to New York, where it is usu- 
ally loaned out on call on Stock Exchange securities, tending 
1o promote dangerous speculation and inovital)ly leading to 



326 PLAN FOR MONETARY LEGISLATION 

injurious disturbances in reserves. This concentration of 
surplus money and available funds in New York imposes upon 
the managers of the banks of that city the vast responsibilities 
which are inherent in the control of a large proportion of the 
banking resources of the country. 

10. The absence of a broad discount market in our sys- 
tem, taken together with the restrictive treatment of reserves, 
creates at times when serious financial disturbances are an- 
ticipated a condition of dependence on the part of individual 
banks throughout the country, and at the same time places 
the farmers and others engaged in productive industries at 
a great disadvantage in securing the credit they require for 
the growth, retention, and the distribution of their products. 

11. There is a marked lack of equality in credit facilities 
between different sections of the country, reflected in less 
favored communities, in retarded development, and great dis- 
parity in rates of discount. 

12. Our system lacks an agency whose influence can be 
made effective in securing greater uniformity, steadiness, and 
reasonableness of rates of discount in all parts of the country. 

13. We have no effective agency that can surely provide 
adequate banking facilities for different regions promptly and 
on reasonable terms to meet the ordinary or unusual demands 
for credit or currency necessary for moving crops or for other 
legitimate purposes. 

14. We have no power to enforce the adoption of uniform 
standards with regard to capital, reserves, examinations, and 
the character and publicity of reports of all banks in the 
different sections of the country. 

15. We have no American banking institutions in foreign 
countries. The organization of such banks is necessary for 
the development of our foreign trade. 

16. The provision that national banks shall not make loans 
upon real estate restricts their power to serve farmers and 
other borrowers in rural communities. 

17. The provision of law under which the Government acts 



TLAN FOR MONETAltY y.K(!ISLATI()N 327 

as custodian of its own funds results in irregular withdrawals 
of money from circulation and bank reserves in periods of 
excessive CJovernnient revenues, and in the return of these 
funds into circulation only in periods of deficient revenues. 
Recent etl'orts to modify the Independent Treasury system 
by a partial distribution of the public moneys among national 
banks have resulted, it is charged, in discrimination and favor- 
itism in the treatment of dift'ereut banks, 

[To remedy these defects the Commission drafted a bill for a "Na- 
tional Reserve Association," a bank for banks, wliich in its main 
features bears some likeness to the earlier First and (second Hanks of 
the United States, and to the great central banks of Europe. The 
proposal is popularly known as the Aldrich Plan, because Senator 
Aldrich was chairman of the Commission, The essential financial 
features of the bill are here taken from Senate Document 243, afore- 
said, pp. 43-72, many details of the organization and control, and less 
important expressions, being omitted.] 

§ 1, Charter, capital, location. The National Reserve 
Association of the United States ... is created and estab- 
lished for a term of fifty years [with] an authorized capital 
equal in amount to 20 per cent, of the paid-in and unimpaired 
capital of all banks eligible for membership, . . . $200,000,- 
000 of the capital stock shall be subscribed and $100,000,000 
of its capital shall be paid in cash. . . . The head office shall 
be located in Washington, D. C. 

§ 2. [Corporate powers set forth.] 

§ 3. Membership of banks. All national banks, and all 
banks or trust companies chartered by the laws of any State 
of the United States or of the District of Columbia, complying 
with the requirements for membership in the said National 
Reserve Association . . . may subscribe to its capital to an 
amount equal to 20 per cent, of the paid-in and unimpaired 
capital of the subscribing banks and not more nor less; . . . 
Fifty per cent, of the subscriptions . . . shall be fully paid in ; 
the remainder . . . shall become a liability of the subscribers, 
subject to call. . . . 



328 PLAN FOR MONETARY LEGISLATION 

[The subscriptions of State banks or trust companies are made sub- 
ject to their complying with conditions substantially the same as to 
amount of capital and surplus, percentage of reserves, etc., and sub- 
mission to examinations, as those imposed upon the national banks.] 

§§4-18 [These sections designate in all needed detail the plans of 
organization and administration. A committee of three Cabinet officers 
is designated (§4) to effect the first organization. There are to be 
fifteen (or more) districts with a branch and a local association of 
subscribing banks in each district (§5, §6). Each local association 
(§7) and each branch (§8) and the whole association (§9) is to have 
a board of directors, chosen by a somewhat complex method of plural 
voting, and representing the banks and agricultural, commercial and 
industrial interests. The board of the National Association is to have 
as ex officio members the Secretaries of the Treasury, of Agriculture, 
and of Commerce and Labor, and the Comptroller of the Currency. 
The "governor" of the Association sliall be selected by the President 
of the United States from a list (§10). Duties of directors in organ- 
izing the Association are indicated (§11). Shares of capital stock 
in the Association are to be o^vned not otherwise than by subscrib- 
ing banks (§12). Exemption from local and State taxation except 
upon real estate (§13). An executive committee (§14) and a board 
of examination (§15) are to be elected by the Board. Managers of 
branches (§16). Organization of local associations (§17). List of 
banks and of shares of stock in the Association to be kept (§18). 
Several of these features (especially §§7-10) have called forth much 
discussion because of the fear of centralization of control over the 
great financial institutions.] 

§ 19. Earnings and dividends. The earnings of the Na- 
tional Eeserve Association shall be disposed of in the follow- 
ing manner: After the payment of all expenses and the 
franchise and other taxes not provided for in this section, the 
shareholders shall be entitled to receive an annual dividend 
of 4 per cent, on the paid-in capital, which dividend shall be 
cumulative. Further annual net earnings shall be disposed 
of as follows: First, a contingent fund shall be created, 
which shall be maintained at an amount equal to 1 per cent, 
on the paid-in capital, and shall not exceed in any event 
$2,000,000, and shall be used to meet any possible losses. 
Such fund shall, upon the final dissolution of the National 
Reserve Association, be paid to the United States and shall 



PLAN FOR MONETARY LEGISLATION 329 

not under any circumstances be included in the book value of 
the stock or be paid to the shareholders. Second, one-hall' 
of additional net earnings shall be paid into the surplus fund 
of the National Reserve Association until said fund shall 
amount to 20 per cent, of the paid-in capital, one-fourth shall 
be paid to the United States as a franchise tax, and one-fourth 
shall be paid to tlie shareholders, until the shareholders' divi- 
dend shall amount to 5 per cent, per annum on the paid-in 
capital : Provided, That no such dividends, exclusive of the 
cumulative dividends above provided for, shall at any time be 
paid in excess of 5 per cent, in any one year. "Whenever and 
so long as the contingent fund has been provided for and 
the five per cent, dividend has been paid to shareholders, one- 
half of the additional earnings shall be paid to the United 
States as a franchise tax. Whenever and so long as the sur- 
plus fund of the National Eeserve Association amounts to 
20 per cent, of the paid-in capital and the shareholders shall 
have received dividends not exceeding 5 per cent., all excess 
earnings shall be paid to the United States as a franchise tax. 
§ 20. Local associations to guarantee commercial paper. 
Any member of a local association may apply to such asso- 
ciation for a guaranty of the commercial paper which it de- 
sires to rediscount at the branch of the National Reserve Asso- 
ciation in its district. Any such bank receiving a guaranty 
from a local association shall pay a commission to the local 
association, to be fixed in each case by its board of directors. 
Expenses and losses in excess of commissions shall be met by 
an assessment of the members of the local association in pro- 
portion to the ratio which their capital and surplus bears 
to the aggregate capital and surplus of the members of the 
local association, which assessment shall be made by its board 
of directors, and the commission received for such guaranty, 
after the payment of expenses and possible losses, shall be 
distributed among the several banks of the local association 
in the same proportion. A local association shall have au- 
thority to require security from any bank offering paper for 



330 PLAN FOR MONETARY LEGISLATION 

guaranty, or it may decline to grant the application. The 
total amount of guaranties by a local association to the Na- 
tional Reserve Association shall not at any time exceed the 
aggregate capital and surplus of the banks forming the guar- 
anteeing association, 

§ 21. Local associations and clearing houses. Any local 
association may by a vote of three-fourths of its members and 
with the approval of the National Reserve Association, as- 
sume and exercise such of the powers and functions of a 
clearing house as are not inconsistent with the purposes of 
this act. The National Reserve Association may require any 
local association to perform such services in facilitating the 
domestic exchanges of the National Reserve Association as 
the public interests may require. 

§ 22. Functions of the National Reserve Association. 
All of its privileges and advantages . . . shall be equitably 
extended to every bank of any of the classes herein defined 
which shall subscribe to its proportion of the capital stock 
and shall otherwise conform to the requirements of this act. 
[Proviso, power of suspending a bank.] 

§ 23. It shall be the principal fiscal agent of the United 
States. The government of the United States shall . . . de- 
posit its general funds, and ... all receipts of the Govern- 
ment, exclusive of trust funds, and make all disbursements 
through said association and its branches. 

§ 24. Its sole depositors shall be the government of the 
United States and banks owning its stock. . . . All its domes- 
tic transactions . . . shall be confined to the Government and 
the subscribing banks, with the exception of the purchase or 
sale of Government or State securities or securities of foreign 
governments or of gold coin or bullion. 

§ 25. It shall pay no interest on deposits. 

§ 26. It may through a branch rediscount for and with 
the indorsement of any bank having a deposit with it, notes 
and bills of exchange arising out of commercial transactions 
. . . and not . . . drawn for the purpose of carrying stocks, 



PLAN FOR MOXKTAUY LEGISLATION SHI 

l)omls, 01- otluT iiivestniout securities. . . . [Details as to ma- 
turity ami auiouut aud kinds of notes rediscounted, §§ 27-20.] 

§ 30. It shall have authority to fix its rates of discount 
from time to time, which when so fixed shall be published, 
and shall be uniform throughout the United States. 

§ 31. National banks are authorized to accept drafts or 
l)ills of exchange drawn upon them, having not more than 
four months to run, properly secured, and arising out of com- 
mercial transactions. Tiie amount of such acceptances out- 
standing shall not exceed one-half of the capital and surplus?. 

§ 32. The National Eeserve Association may purchase 
from a subscribing bank acceptances of banks or acceptors of 
unquestioned financial responsibility arising out of commer- 
cial transactions. Such acceptances must have not exceeding 
ninety days to run, and must be of a character generally 
known in the market as prime bills. 

§ 33. It may invest in United States bonds; also in obli- 
gations, having not more than one year to run, of the United 
States or its dependencies, or of any State, or of foreign gov- 
ernments. 

§ 34. It shall have jDOwer, both at home and abroad, to 
deal in gold coin or bullion, to make loans thereon, and to 
contract for loans of gold coin or bullion, giving therefor, 
when necessary, acceptable security, including the hypotheca- 
tion of any of its holdings of United States bonds. 

§ 35. It shall have power to purchase from its subscrib- 
ing banks and to sell, with or without its indorsement, cheeks 
or bills of exchange, arising out of commercial transactions as 
hereinbefore defined, payable in such foreign countries as its 
board of directors . . . may determine. These bills of ex- 
change must have not exceeding ninety days to run, and must 
])ear the signatures of two or more responsible parties, of 
which the lasit one shall be that of a subscribing bank. 

§ 36. It shall have power to open and maintain banking 
accounts in foreign countries and to establish agencies in for- 
eign countries for the purpose of ]uirehasing, selling, and 



332 PLAN FOR MONETARY LEGISLATION 

collecting foreign bills of exchange, and it shall have author- 
ity to buy and sell, with or without its indorsement, through 
such correspondents or agencies, checks or prime foreign bills 
of exchange arising out of commercial transactions, which 
have not exceeding ninety days to run, and which bear the 
signatures of two or more responsible parties, 

§ 37. [Duty to transfer credit balances, by mail, tele- 
graph, or otherwise.] 

§ 38. It may purchase, acquire, hold, and convey real 
estate for the following purposes and for no other: [Condi- 
tions specified]. 

§ 39. Reserves of subscribing banks. All subscribing 
banks must conform to the following requirements as to re- 
serves to be held against deposits of various classes, but the 
deposit balance of any subscribing bank in the National Re- 
serve Association and any notes of the National Reserve Asso- 
ciation which it holds may be counted as the whole or any part 
of its required reserve: 

First. On demand deposits: National banks in different 
localities shall maintain the same percentages of reserve 
against demand deposits as is now required by law, and the 
same percentages of reserve against demand deposits shall be 
required of all other subscribing banks in the same localities. 

Second. On time deposits : All time deposits and moneys 
held in trust payable or maturing within thirty days shall be 
subject to the same reserve requirements as demand deposits 
in the same locality. All time deposits and moneys held in 
trust payable or maturing more than thirty days from date 
shall be subject to the same reserve requirements as demand 
deposits for the thirty days preceding their maturity, but no 
reserves shall be required therefor except for this period. 
Such time deposits and moneys held in trust, payable only at 
a stated time not less than thirty days from date of deposit, 
must be represented by certificates or instruments in writing 
and must not be allowed to be withdrawn before the time 
specified without thirty days' notice. 



riuiVN FOR MONETARY LKIJISLATION 333 

§ 40. National banks may loan not more than 30 per cent, 
of their time deposits, as herein delinetl, upon improved and 
unencumbered real estate, such loans not to exceed 50 per 
cent, of the actual value of the property, which property shall 
be situated in the vicinity or in the territory directly tribu- 
tary to the bank: Provided, That this privilege shall not 
be extended to banks acting as reserve agents for banks or 
trust companies. 

§ 41. All demand liabilities, including deposits and cir- 
culating notes, of the National Reserve Association shall be 
covered to the extent of 50 per cent, by a reserve of gold 
(including foreign gold coin and gold bullion) or other money 
of the United States which the national banks are now au- 
thorized to hold as a part of their legal reserve: Provided, 
That whenever and so long as such reserve shall fall and re- 
main below 50 per cent, the National Reserve Association 
shall pay a special tax upon the deficiency of reserve at a rate 
increasing in proportion to such deficiency as follows: For 
each 2V2 per cent, or fraction thereof that the reserve falls 
below 50 per cent, a tax shall be levied at the rate of IV2 per 
cent, per annum; Provided further, That no additional cir- 
culating notes shall be issued whenever and so long as the 
amount of such reserve falls below 33/^ per cent, of its out- 
standing notes. 

§ 42. In computing the demand liabilities of the National 
Reserve Association, a sum equal to one-half of the amount 
of the United States bonds held by the association which 
have been purchased from national banks, and which had 
previously been deposited by such banks to secure their 
circulating notes, shall be deducted from the amount of such 
liabilities. 

§§ 43-46. [Details as to reports of the National Reserve 
Association and of the subscribing banks.] 

§ 47. Bank-note issues. All provisions of law requiring 
national banks to hold or to transfer and deliver to the Treas- 
urer of the United States bonds of the United States other 



334 PLAN FOR MONETARY LEGISLATION 

than those required to secure outstanding circulating notes 
and Government deposits as hereby repealed. 

§ 48. There shall be no further issue of circulating notes 
by any national bank beyond the amount now outstanding. 
National banks may maintain their present note issue, but 
whenever a bank retires the whole or any part of its existing 
issue its right to reissue the notes so retired shall thereupon 
cease. 

§ 49. The National Keserve Association shall, for a period 
of one year from the date of its organization, offer to purchase 
at a price not less than par and accrued interest the 2 per 
cent, bonds held by subscribing national banks and deposited 
to secure their circulating notes. It shall take over the bonds 
so purchased and assume responsibility for the redemption 
upon presentation of outstanding notes secured thereby. It 
shall issue, on terms herein provided, its own notes as the 
outstanding notes secured by such bonds so held shall be pre- 
sented for redemption and may issue further notes from time 
to time to meet business requirements, it being the policy of 
the United States to retire as rapidly as possible, consistent 
with the public interests, bond-secured circulation and to sub- 
stitute therefor notes ... of a character and secured and 
redeemed in the manner provided for in this act. 

§ 50. All note issues of the National Eeserve Association 
shall at all times be covered by legal reserves to the extent re- 
quired by section 41 of this act and by notes or bills of ex- 
change arising out of commercial transactions as hereinbefore 
defined or obligations of the United States. 

§ 51. Any notes of the National Reserve Association in 
circulation at any time in excess of $900,000,000 which are 
not covered by an equal amount of lawful money, gold bullion, 
or foreign gold coin held by said association, shall pay a spe- 
cial tax at the rate of ll^ per cent, per annum, and any notes 
in excess of $1,200,000,000 not so covered shall pay a special 
tax at the rate of 5 per cent, per annum: Provided, That 



PLAN FOi: MONETARY LEGISLATION 335 

in foinputiiiu- said aiiiouiifs . . . tlie aggregate amount <)(.' any 
national-bank notes then outstanding shall be ineluded. 

§ 52. The circulating notes of the National Reserve Asso- 
ciation shall constitute a first lien upon all its assets and shall 
be redeemable in lawful money on presentation at the head 
office of said association or any of its branches. It shall be 
its duty to maintain a parity of value of its circulating notes 
Avith the standard established by the first section of the act of 
IMarch 14, 1900, entitled "An act to define and fix the stand- 
ard of value, to maintain the parity of all forms of money 
issued or coined by the United States, to refund the public 
debt, and for other purposes." 

§ 53. The circulating notes of the National Reserve Asso- 
ciation shall be received at par in payment of all taxes, excises, 
and other dues to the United States, and for all salaries and 
other debts and demands owing by the United States to indi- 
viduals, firms, corporations, or associations, except obligations 
of the Government which are by their terms specifically pay- 
able in gold, and for all debts due from or by one bank or 
trust company to another, and for all obligations due to any 
bank or trust company. 

§ 54. The National Reserve Association and its branches 
shall at once, upon application and without charge for trans- 
portation, forward its circulating notes to any depositing bank 
against its credit balance. 

§ 55. United States bonds. Upon application of the 
National Reserve Association the Secretary of the Treasury 
shall exchange the 2 per cent, bonds of the United States bear- 
ing the circulation privilege purchased from subscribing banks 
for 3 per cent, bonds of the United States without the cir- 
culation privilege, payable after fifty years from the date of 
issue. The National Reserve Association shall hold the 3 per 
cent, bonds so issued during the period of its corporate exist- 
ence: Provided, That after five years from the date of its 
organization the Secretary of the Treasury may at his option 



336 PLAN FOR MONETARY LEGISLATION 

permit it to sell not more than $50,000,000 of such bonds an- 
nually: And provided further, That the United States re- 
serves the right at any time to pay any of such bonds before 
maturity, or to purchase any of them at par for the trustees 
of the postal savings, or otherwise. 

§ 56. The National Eeserve Association shall pay to the 
Government a special franchise tax of li/o per cent, annually 
during the period of its charter upon an amount equal to the 
par value of such United States bonds transferred to it by the 
subscribing banks. 

§ 57. Banking in foreign countries. Banking corpora- 
tions for carrying on the business of banking in foreign coun- 
tries and in aid of the commerce of the United States with 
foreign countries and to act when required as fiscal agents of 
the United States in such countries may be formed . . . under 
prescribed regulations, but shall not be authorized to receive 
deposits in the United States nor transact any domestic busi- 
ness not necessarily related to the business being done in for- 
eign countries or in the dependencies of the United States. 
[Authority and power conferred; conduct regulated.] 

§ 58. [Congress reserves right to alter or amend at the end 
of any decennial period.] 

§ 59. [Acts inconsistent repealed.] 



THE TRADE BALANCE OP THE UNITED STATES 

[Among tlie valuahle papers puhlislicd by tlic National Monetary 
Commission is one of the foregoing title by George Paish, editor of 
The Statist (part of Senate Document 579, 61st Congress, 2d session, 
1010, pp. 151-213). The following extracts serve to epitomize the 
argument which is developed in much greater detail and which, in a 
very convincing way, exposes the error of the popular view that 
balances of accounts for merchandise exports and imports are settled 
by corresponding gold imports and exports. The figures given are 
mostly for the years 1008-09.] 

On trade balances [page 153]. The term "trade bal- 
ance" is generally used for the purpose of indicating the 
excess value of a country's exports of merchandise over the 
value of its imports of merchandise or the excess value of a 
country's imports of merchandise over the value of its ex- 
ports of merchandise. lu monetary circles the term is em- 
ployed to denote the ability of a country to import supplies 
of the precious metals. If the rate of exchange of one coun- 
try upon other countries is at the level Avhich permits of gold 
imports, it is said that the balance of trade is in favor of the 
country importing the gold. On the other hand, if the rate 
of exchange of any country is at a level which admits of gold 
exports, the balance of trade is said to be against the country 
exporting the gold. In the sixteenth, seventeenth, and 
eighteenth centuries a favorable trade balance was a matter of 
great concern to statesmen and to financiers. At that time it 
was supposed that any country which imported goods of 
greater value than the goods it exported would be seriously 
injured by having to make payment in the precious metals 
for the difTerence between the value of the goods imported 
and the value of the goods exported, and that any country 

22 337 



338 THE TRADE BALANCE 

which persisted in purchasing goods of greater value than the 
goods it exported would be totally drained of its stock of 
the precious metals and would be ruined. The theory of the 
supreme importance of a balance of exports over imports was 
known as the "Mercantile system." . . . 

The great change in the theory of comm.eree that has taken 
place in modern times is due to the recognition of the fact 
that the volume of trade which any country enjoys quickly 
adjusts itself to the needs of that country, and that the 
effect of a sudden disturbing influence to trade — such as a 
crop failure, labor troubles, etc., which temporarily reduce 
a nation's exporting power — can be got over by financial 
operations in the great international money markets, and 
that excessive drains of the precious metals are not now to 
be apprehended. Experience has shown that apart from sud- 
den catastrophes the foreign trade of every country is of a 
very elastic character, that the volume of imports or of exports 
quickly responds to the necessities of the case, and that no 
country can have an adverse balance of trade except for a 
short time and as a consequence of some unexpected disaster 
which temporarily diminishes its power to make payment for 
goods imported. Even at such times countries in good credit 
have no difficulty in borrowing temporarily or permanently 
the sums required to settle the balance due to other coun- 
tries for commodities purchased or obligations incurred prior 
to the disturbing event — a process which averts any excessive 
denudation of the stock of the precious metals possessed by 
the country experiencing the disaster. . . . 

Lending and borrowing countries [page 169]. There is 
practically no country which neither exports nor imports 
capital with the exception of Thibet. . . . The chief coun- 
tries which supply capital to other lands are Great Britain, 
Germany, France, Holland, Belgium, and Switzerland. . . . 
Great Britain has about $15,000,000,000 of capital invested 
abroad and is adding to its colonial and foreign investments 
at the rate of upwards of $500,000,000 a year. Germany 



Till; TKADK I'.AI.ANCE 330 

ami F'raDi'o coiiie next with invest mculs of about $8,000,000,- 
000 oacli. 'riic investments of Holland, Belgium and Switzer- 
land arc of iniu'li smaller amount, but are nevci'theless con- 
siderable. The imports of all these five countries largely 
exceed their exports in consequence of the receipt of interest 
and of tourist expenditures. In the ease of Great Britain 
the excess of imports over the exports is further largely in- 
creased by the earnings of British ships, the tonnage of which 
forms so large a portion of the world's international ship- 
jnng facilities. The fleets of other countries are not nnich 
more than suflficient to take care of their own trade in the 
aggregate ; indeed, in most cases they are insufficient for 
tills purpose, and the deficiency is made good by the British 
mercantile marine. 

The principal countries whose exports exceed their imports 
in consequence of the large amount of interest they have to 
pay on capital borrowed from other lands are the United 
States, the Australasian colonics of Great Britain, British 
India, Argentina, Brazil, and JMexico. Several other coun- 
tries whose imports now exceed their exports will eventually 
come into this category. At the present time Canada's im- 
ports largely exceed her exports in consequence of the vast 
amount of capital — about $200,000,000 a year — which she is 
borrowing from other lands — almost entirely from Great 
Britain. In the course of time tlie Canadian indebtedness 
to other countries and the expenditure of her tourists, etc., 
will be so great that her exports will exceed her imports, 
although large amounts of capital will continue to flow into 
the country each year. Of course Canada Avill have no dif- 
ficulty in making these interest payments, having regard to 
the rapid growth in the annual amount of wealth created by 
means of the capital she is importing. China, Japan, and 
Chile are other instances of the inflow of large amounts of 
foreign capital. . . . 

Europe's capital investments in the United States [pages 
174-1 76J. Great Britain possesses about $3,500,000,000 of 



340 THE TRADE BALANCE 

American securities. . . . The French investments in the 
United States, including the Pennsylvania Railroad and other 
loans placed in Paris since 1902, amount to nearly $500,000,- 
000. . . . German bankers place the amount of the German 
investments in American securities at about $1,000,000,000. 
The amount of Dutch capital in the United States is about 
$750,000,000. American securities are also held in Belgium, 
Switzerland, and in other countries. In the aggregate the 
amount of European capital invested in "permanent" se- 
curities in the United States is approximately $6,000,000,000. 

Beyond the fixed capital invested by Europe in the United 
States, account has to be taken of the floating loans made by 
Europe to America. These floating loans are mainly incurred 
in the spring and summer months in anticipation of the pro- 
duce shipments from the States in the fall months and they 
are then largely liquidated. The amount of the floating debt 
of the United States to Europe in the form of produce bills, 
finance bills, loans against securities, overdrafts, etc., averages 
about .$400,000,000, reaching a larger sum in July and early 
August and falling to a much lower sum at the end of De- 
cember. The rate of interest paid upon this floating debt in 
so far as it consists of produce bills is a very low one, the 
rate of interest charged on this class of loan being less than 
that on any other kind of security. 

Including both the fixed investments and the floating loans, 
the amount of capital borrowed by the United States from, 
other countries is about $6,500,000,000, the annual interest 
charge upon which is about $300,000,000. 

An otfset to the large amount of capital invested in the 
United States is the capital invested by American citizens in 
other countries, more especially in Mexico, Canada, in the 
Southern American States, in the Philippines, in Cuba, etc. 
. . . The amount of American capital invested in other lands 
in this manner both publicly and privately is probably $1,- 
500,000,000 yielding am income of about $75,000,000 a year. 
By deducting the interest — $75,000,000 — received upon 



TIIIO TKADi: I'.ALANCK 841 

American capital placed abroad rruiu the interest — $300,- 
0(X),000 — which the United States pay upon capital supplied 
t^ them by other lauds, 1 arrive at a net payment oi" $225,- 
000,000 by the United States to other countries for interest 
and dividends upon capital. This sum the United States has 
to remit eaeh year by exports oC produce. 

The value to the United States of loans of capital by other 
lands [page 177]. The capital obtained by America from 
other lantls, mainly from Great Britain, was chiefly for the 
purpose of extending and improving the railway system of 
tile country. No one can survey the remarkable growth in the 
production, wealth, and population of the United States with- 
out expressing his appreciation of the great part played 
by railway extensions in bringing about that growth. The 
extension of railways alone made it possible to bring into 
cultivation the vast tracts of virgin lands that are now under 
the plow. Without railways the United States could not now 
produce annually agricultural wealth of the value of about 
$8,000,000,000. Again the extension of railways alone made 
it possible to reach and to develop upward of $2,000,000,000 
of mineral wealth per annum. It is the railways that enable 
the people of the United States to reach and to obtain for 
their use the vast quantity of luml)er annually cut from the 
forests. Lastly, the immense manufacturing industries of the 
States which now distribute over $3,000,000,000 in wages 
could never have been built up but for the construction of 
railways. 

The provision of some $0,500,000,000 of capital to the 
United States by older countries, mainly for railway construc- 
tion, has enabled the American people to devote their rapidly 
growing savings to the building and furnishing of homes, to 
the eciuipment of manufactories, to fitting out retail estab- 
lishments, and to other purposes to a much greater extent than 
otlierwise would have been possible, and in this way the for- 
eign capital has greatly accelerated the growth of population, 
production, anil wealth. By tiie use of the $6,500,000,000 of 



342 THE TRADE BALANCE 

capital obtained from other countries the annual production 
of wealth by the United States has, I calculate, been increased 
to a nearly corresponding extent and the accumulated wealth 
of the country has been increased by many times the amount of 
the capital borrowed. The additional value given to land 
alone by the construction of railway's is so vast and so ap- 
parent that it needs no demonstration. The increase in the 
annual production of wealth by the United States rendered 
possible by the importation of capital has been at least twenty 
times greater than the sum paid for interest. The investment 
of this capital by the older countries in the United States has 
thus brought advantages which cannot easily be exag- 
gerated. . . . 

Tourist and other expenditures [page 179] . The number 
of American citizens visiting other lands in the course of the 
year is now upward of 200,000. The data I have been able 
to obtain as to the expenditures of these tourists shows that 
the sum expended by them approximates to $1,000 per per- 
son. This sum includes merely the passage money and the 
sums expended in other countries for food, transportation, and 
other miscellaneous expenditures. It does not include the 
sums expended upon works of art, jewelry, clothing, etc., 
which are declared at the customs and are included in the 
value of the goods imported into the United States. In the 
aggregate, tourist expenditures for the purposes I have men- 
tioned reach a total of about $200,000,000. On the other 
hand, a number of foreign tourists visit the United States 
and their expenditures should be placed against those of 
American citizens. . . . Apparently the number of visitors, 
other than immigrants passing through to Canada, was about 
30,000. The expenditures of visitors to the United States 
may be taken at about $1,000 per person, excluding all ship- 
ping transportation, or an aggregate sum of visitors' ex- 
penditures in the United States of $30,000,000. On balance, 
therefore, the United States has to pay to other countries 



Tin; TitAni; r.Ai-.wci: 343 

a sum of about $170,000,000 a yviw to cover tourist expen- 
ditures. . . . 

[Page 182] For all practical purposes I calculate that the 
money brought into the country by immigrants about coun- 
terbalances the money taken out of the country by emigrants 
returning to their native lands and by "other than cabin pas- 
sengers" visiting other countries. 

Remittances to friends. The great prosperity of the 
United States enables many of its citizens who have come 
from other lands to make gifts of large sums of money in 
the aggregate to friends in the old countries. The remittance 
of this money means that the United States has to send con- 
siderable quantities of produce abroad for which there is no 
corresponding item on the import side of the account, as the 
produce goes for the purpose of providing the funds neces- 
sary to cash the postal money orders and other drafts re- 
mitted to friends. The amount of these remittances is ex- 
ceedingly ditficult to calculate, but that it is large every one 
admits. . . . 

With the data at my disposal I do not feel justified in 
placing the amount of money remitted by American citizens 
to friends in other countries at a larger figure than $150,000^- 
000. This is still a very large sum, and is a factor of very 
great importance in calculating the trade balance of the 
United States and the amount of produce which has to be 
remitted for various purposes other than to pay for goods 
imported. 

Freights [page 186]. The United States possesses a mer- 
cantile marine large enough to convey but a small portion of 
the produce they export and import, and considerable pay- 
ments have to be made for shipping services. In 1907-8 
the imports into the United States by sea were valued at $1, 
12:3,000,000. Of tills amount $152,000,000, or 13.5 per cent., 
was carried in American vessels and $971,000,000, or 86.5 
per cent., in foreign vessels. In the same year the exports 



344 THE TRADE BALANCE 

from the United States were valued at $1,670,000,000, of 
which amount the produce conveyed in American vessels was 
valued at $120,000,000, representing a proportion of only 
7.2 per cent, and the balance of $1,550,000,000, or 93.8 per 
cent., was conveyed in foreign vessels. The sum which the 
United States had to pay to other lands for marine trans- 
portation is much smaller than is usually calculated. . . . 
After taking all these factors into consideration I calculate 
that the net sum which the United States pays to other coun- 
tries for the transportation of merchandise is about $25,000,- 
000 per annum. Payment of this sum has also to be re- 
mitted to other lands by exports of produce. . . . 

Insurance [page 190]. A large amount of fire insurance 
is written each year in the United States by English and 
other offices and the sums payable to those officers in respect 
of insurance reaches a considerable figure. On the other 
hand, the fire losses of foreign officers in the United States 
are heavy and the profit which alone accrues to other coun- 
tries is not a large item, at any rate it has not been a large 
item in the recent past. On the other hand, American life 
assurance offices transact a fairly large business in foreign 
countries. . . . On balance, if all kinds of insurance and as- 
surance are combined, America probably has to pay very little 
to other lands and the factor of insurance in calculating the 
trade balance may consequently be ignored. 

Summary of remittances for interest; tourist expend- 
itures, gifts to friends, and freight charges. Thus I arrive 
at the conclusion that the United States have on balance to pay 
other countries a net sum ... of about $595,000,000 for pur- 
poses other than for the purchase of goods from other coun- 
tries. In other words, the exports of merchandise, gold, and 
silver from the United States must exceed the aggregate value 
of the merchandise gold and silver imported by nearly $600,- 
000,000 in order that payment may be made for interest, tour- 
ist expenditures, etc. That is to say, America requires an 
excess of exports over imports of nearly $600,000,000 per an- 



THE TRADE BALANCE 345 

nuin iu order to settle her trade balanee. If she has a hirger 
balance of exports over imports than this figure, she is repaying 
a portion of her obligations to other lauds. If she has less than 
this sum, she is borrowing additional eapital from other lands. 
It should, however, be clearly understood that this amount is 
subject to wide fluctuations, and is by no means a hard and fast 
obligation. . . . Taking all these circumstances into account, 
I calculate that in a year of depression the obligation of the 
United States to other countries for interest, tourist expendi- 
tures, remittances to friends, freight, etc., is about $500,000,- 
000 and that iu years of normal trade activity it is about 
$600,000,000. 

Perhaps the situation will be more clearly realized if I set 
it out iu tabular form : 

fobeig.x trade of the united states, 1908-9. 
Merchandise: 
f]xports: 

Domestic $1 ,638,000,000 

Foreign 25,000,000 

Total 1,663,000.000 

Imports 1,312,000,000 

E.vcess of merchandise ex- 
ports over imports $351,000,000 

Gold: 

Exports 92.000.000 

Imports 44,000.000 

Excess of gold exports 

over imports 48,000,000 

Silver: 

Exports 56.000.000 

Imports 44,000.000 

Excess of silver exports 

over imports 12,000,000 

Total excess of mer- 
chandise, gold, and sil- 
ver exports over im- 
ports $411,000,000 



346 THE TRADE BALANCE 

Remittances fob Interest, 

ETC.: 

Interest i $250,000,000 

Tourist expenditures 170,000,000 

Remittances to friends 150,000,000 

Freight 2 25,000,000 

Total remittances $595,000,000 

Excess of sum remitted 
for interest, tourists, 
to friends, and for 
freights over trade bal- 
ance $184,000,000 

1 [A discrepancy appears here ; for above the interest payable abroad 
is put at $300,000,000 and that coming from abroad at $75,000,000, leav- 
ing a balance of $225,000,000 payable. Ed.] 

2 [The writer does not set forth the debits and credits entering to 
produce this balance, but implies that these items are about in propor- 
tion to the value of goods carried, $2,521,000,000 by foreign and $272,- 
000,000 by American vessels, or about 903 per cent, and 0.7 per cent, of 
the total. Proportional freights would be $28,000,000 to foreigners, and 
$3,000,000 to American shipowners, to give a balance of $25,000,000, 
Ed.] 



/ 



SOME FINDINGS ON WOOL 

Iln the tariff act of Aiif,'ust 5, 1000, the President of the United 
States was authorized to supply "persons" "to secure information" 
rej^nrding the working of tiie tariff laws. He appointed a "Tariff 
lioanl" of live nienilHrs. witii 11. C. Emery, professor of economics in 
Vale University, as Chairman, The Board has made reports on the 
Pulp and news-print paper industry (i)reliniinary ) Feb., 1011, and 
(another report) Maj', 1011; on Wool and manufactures of wool 
(Schedule K of the tariff of 1900) Dec. 20, 1011; on Chemicals, oils 
and paints (Schedule A) Feb. 7, 1012; and on Cotton manufactures 
March, 1012, The report on Wool, the most voluminous of these, 
contains 12S0 pages of painstaking and detailed information. Tlie 
main findings of the investigation are compressed in the letter of 
submittal to the President, from wiiich we here extract nearly one- 
half, retaining tiie jwrtions dealing with costs and prices, but omitting 
the discussion of tariff duties.] 

Wool costs [pnye 10]. The result of the raw-wool in- 
vestigation establishes the fact that it costs more to grow 
wool in the United States than in any other country; that the 
merino wools required in such great volume by our mills 
are the most expensive of all wools produced ; that the high- 
est average cost of production of such wool in the world is in 
the State of Ohio and contiguous territory; and that the 
lowest average cost on similar wool is in Australia. 

It is not possible to state in exact terras the actual cost 
of producing a pound of wool considered by itself, for the 
simple reason that wool is but one of two products of the 
same operation. 

That is to say, flocks produce both fleeces and mutton — 
products entirely dissimilar in character and yet produced as 
the result of the same expenditure for forage and for labor. 
The board has deemed it best, therefore, for the purpose of 

3-17 



348 SOME FINDINGS ON WOOL 

this inquiry, to treat fleeces as the sole product and charge 
up against their production the entire receipts from other 
sources. This method gives an accurate return so far as the 
general results of flock maintenance are concerned ; results 
which are comparable as between various sheep-growing re- 
gions. 

In order that results from the different sections and from 
different countries might be more comparable, the item of in- 
terest on investment — which varies from 4 to 6 per cent, in 
Australia and from 8 to 10 per cent, in our TVestern States 
— was left for consideration in connection with profits. For 
a similar reason the actual production cost of harvested crops 
fed to flocks was used instead of the market value of same. 
On this account the expense charges shown are materially 
lower than those commonly quoted in the industry. 

Figured in this manner, the board finds: 

That after crediting the flock with receipts from all sources 
other than wool, the latter product, in the ease of the fine 
merino wools of the United States, is going to market with an 
average charge against it of not less than 12 cents per pound, 
not including interest on the investment. 

That the fine wools of the Ohio region are sold bearing an 
average charge for production of 19 cents per pound. 

That in the States east of the Missouri Eiver wool produc- 
tion is incidental to general farming. Here producers, with 
the exception of certain-named districts, lay more stress 
upon the output of the mutton than of wool, and in such cases 
the receipts from the sale of sheep and lambs ordinarily cover 
the flock expense, leaving the wool for profit. The position 
of the fine-wool producers, however, not only of the Ohio re- 
gion, but of the far West, is radically different. 

That in the western part of the United States, where about 
two-thirds of the sheep of the country are to be found, the 
''fine" and "fine medium" wools carry an average charge of 
at least 11 cents per pound, interest not included. 

That if account is taken of the entire wool production of the 



SOMIO FINDLNCS OX WOOL 341) 

coutih-y, iiiiliidiiiL,' l)otli line niid coarse wools, the average 
cluiriio ai:aiiis( the elip is ahout D'/L' eeiits per pound. 

Tiiat in South Anieriea the correspondiug cliargc is be- 
tween 4 and 5 cents per pound. 

That in New Zealand and on tlio favoral)ly situated runs 
of Australia it seems clear that at the present range oi' values 
for stock sheep and million the receipts from other sources 
than wool are carrying the total flock expense. So that taking 
Austrahisia as a whole it appears that a charge of a very few 
cents per jiound lies against the great clips of that region in 
the aggregate. AVhile the board cannot undertake to name an 
exact tigure in that case, it is certain that the Australasian 
costs at large fall materially below the average South 
American. 

That in the Western United States the capitalization per 
head of sheep (inclusive of land) is $5.30 upon which a gross 
profit of 6.2 per cent, was realized during the twelve months 
under review. The interest rate in that region ranges from 
8 to 10 per cent, per annum. 

That the labor, forage, and necessary miscellaneous ex- 
penses in the ^Yesteru United States exceed $2 per head per 
annum as against an estimated cost, covering the same ele- 
ments of expense, of less than $1 in Australia and about $1.15 
per head in South America. . , . [Here are discussed wool 
duties and their effects.] 

Relative prices [page 14]. On the other hand, prices in 
this country on the fabrics just referred to are not increased 
by the full amount of the duty. A collection of representative 
samples was made in England of goods ranging from those 
which cannot be imported at all to those which are imported 
continually. These were then matched with a collection of 
samples of American-made cloths Avhich were fairly com- 
parable, and the mill prices compared for the same rate. It 
is found that on goods entirely exelu(l(>(l the nominal rates 
of duty would reach an ad valorcMu rate of I.IO or even over 
200 per cent., but that the American fabric is actually sold in 



350 SOME FINDINGS ON WOOL 

the market at from only 60 to 80 per cent, higher than similar 
goods sold abroad. 

On sixteen samples of foreign goods, for instance, none 
of which are imported, the figures are as follows: 

Total of foreign prices $ 41.84 

Duties wliich would liave been assessed bad they been 

imported 76.90 

Foreign price, plus the duty, if imported 118.74 

Actual domestic price of similar fabrics 69.75 

Thus, though the nominal duties on such fabrics equal 184 
per cent., the actual excess of the domestic price over the 
foreign price on similar fabrics of this kind is about 67 per 
cent. This is the result of domestic competition. 

At the present time the industry in general is on a compet- 
itive basis. Certain specialities may be produced in limited 
quantities by particular firms which cannot be duplicated 
successfully by their competitors. This might be the result 
of secret processes or of some special skill in designing or 
finishing. This may mean a wide margin of profit per unit 
of product in individual cases. It should also be noted that 
even in the case of standard goods the industry is one pecul- 
iarly dependent on fashion, and the manufacturer who 
happens to succeed in anticipating the shifting public demand 
may sell his goods upon a wide margin over the cost of manu- 
facture and make large profits. Under ordinary circum- 
stances the average manufacturer will find that he can sell 
a part of his output with a good margin of profit, and that 
another part which does not meet the public demand will have 
to be sold close to the cost price or even below. 

As to the productive capacity of the country in cloth-mak- 
ing to meet the domestic demand, there is at the present time 
no indication of any lack of adequate equipment. It is true 
that some years ago a greatly increased demand for worsted 
fabrics, assisted by the high tariff on worsted goods and their 
by-products, made the manufacture of such goods very prof- 
itable and the investment alluring, but this led to a rapid 



SO.MK FIN1>IN(;S ON WOOL 3r.l 

increase of worsted luacliincry in tins country and the build- 
ing of great modern mills in rapid succession in various parts 
of the East. A very consideral)le part of this increase was 
due to the inflow of foreign capital and the transfer of ex- 
perienced cloth manufacturers from other countries. The 
residt has been a great increase in competition. 

Relative costs of manufacturing. The cost of manufac- 
turing woolen and worsted yarns and cloth in the United 
States is much higher than in Europe. The main elements 
of cost of production are cost of plant, material, and labor. 

The cost of erecting and equipping both woolen and 
worsted mills is much higher in this country than in England. 
The cost of erecting and equipping a woolen mill is about 
45 per cent, greater. The same is true of the weaving de- 
partment of a worsted mill using American machinery. 

The excess in cost in the case of worsted spinning is greater, 
as most of the machinery is imported. This pays a duty of 
45 per cent, ad valorem, and to this must be added charges 
for packing, freight, etc., which makes the foreign machine 
cost 70 per cent, over or more in this country than abroad. 
Nor does this include the cost of erection, as does the price 
to the English manufacturer. The same is true of weaving 
machinery when imported. 

The material is increased in price by the duty on raw 
wool. The manufacturer who imports his wool must pay the 
full amount of the duty, and this means either additional 
working capital or an additional interest charge to be paid. 
"Wools grown in the United States are increased in value by 
the duty, but not by the full extent of the duty. 

Wages are much higher in the United States, but wages are 
in themselves no necessary indication of relative cost of pro- 
duction. Fre(iuently it is found that high wages and low 
lal)or costs go together. The question at once arises whether 
the labor in x\merican woolen and worsted manufacturing is 
more efficient than such labor abroad, or whether by more 
efficient management or greater speed in machinery the 



352 SOME FINDINGS ON WOOL 

American manufacturer is able to get a larger product per 
operative in proportion to the difference in wages. 

It appears that this particular industry is one in which 
the high elements of costs in this country are not in general 
offset by any particular advantage or by any marked supe- 
riority in the efficiency of labor. To a certain extent, in fact, 
European countries have the advantage of us in this latter 
regard. In the centers of the industry abroad there is an 
adequate supply of labor which has been trained for genera- 
tions in this one industry. In the United States a consider- 
able portion of the labor is found to be of unskilled 
immigrants with no previous experience in manufacture ; and 
in certain centers this population is of a very fluctuating 
kind, and the manufacturer is obliged continually to break 
in a new set of inexperienced operatives. 

The American tendency to secure the maximum output is 
noticeable in some cases, but comparing this country with 
England, at least, it may be said that the possibilities of 
speed have been practically reached in the latter country. So 
far as worsted spinning is concerned, the best mills in this 
country seem to be able to operate with fewer operatives per 
machine and to get a greater product per operative than in 
some European countries, but if this means a sacrifice of 
quality of product to output it is not really a decrease in 
cost. Looms in the Bradford district run, on the whole, at a 
higher rate of speed than do looms in the United States. 

Furthermore, there is no superiority in American machin- 
ery over foreign machinery. As a matter of fact, a large 
amount of foreign machinery is used in this country, and in 
the worsted mills covered by the investigation into machine 
efficiency 87 per cent, of all the machinery, from the scour- 
ing of raw wool through to the finished yarn, was imported. 
Only 22.9 per cent, of looms were imported. 

It may be said, then, that, taking the industry as a whole, 
the American manufacturer practically has no advantage in 
efficiency of labor and equipment over his foreign competitor, 



SOMK F1M)1\(;S OX WOOL 333 

although this statement is siilijccl to exceptions in I lie case 
of particuhir jiroeesses at partieuhir mills. On certain 
specialties the laryest and most efficient American mills are 
able by skilful organizations materially to reduce the dif- 
ference in cost. 

Detailed figures as to relative costs of production are given 
in Part III of the report. Eoughly summarized they may 
be expressed as follows: 

Tops. Tile ditTerence in the cost of turning wool into 
tops in this country and England varies with the quality of 
the tops. Considering all grades, it may be stated tiiat 80 
I)er cent, presents a rough approximation of the excess of 
the American cost over the English. This, of course, does 
not mean 80 per cent, of the value of the tops, but merely 
80 per cent, of the conversion cost. The cost of conversion 
in the case of tops is in any case but a few cents and but a 
small fraction of the total value of the product, including 
material. The charges for commission combing in the two 
countries vary about 60 per cent. The reason for the di- 
vergence of the cost figures from the commission charges is 
explained in the report. 

Worsted yarns. The cost of producing j-arns varies in 
different countries according to particular qualities and 
methods. In England the method of frame spinning is the 
more common, and on the Continent mule spinning. The 
latter is the more expensive process. Comparing frame spin- 
ning in England with frame spinning in the United States 
— which is the common method here — it may be said that al- 
though there are wiile variations in both countries from mill 
to mill, the conversion cost for the same quality and count 
of yarns in the United States is about twice that in England. 
The difference in the cost between the United States and 
Germany is not so great. 

This refers to the mere cost of turning tops into yarn, 
and of course does not mean that the difTerencc in cost is 
equal to 100 per cent, of the foreign selling value. The 

23 



354 SOME FINDINGS ON WOOL 

foreign conversion cost of yarn from tops, except in the case 
of the finest yarns, is normally less than 20 per cent, of the 
total market value of the yarn. Care should be taken not to 
confuse the ratio between manufacturing costs and the ratio 
between total values, including cost of raw material. 

Woolen and worsted industry. The difference in manu- 
facturing cost here and abroad of woolen and worsted fabrics 
(from yarn to finished cloth) varies greatly, according to the 
character of the fabrics. The main processes included are 
weaving, finishing, and dyeing. The figures of the board 
show that the cost of turning yarn into cloth in the United 
States compared with England is all the way from 60 per 
cent, to 170 per cent, higher, according to the character 
of the fabric. For a great variety of fabrics the American 
conversion cost is from 100 to 150 per cent, greater than the 
English cost. This is further substantiated by the fact that 
the weaving scales per yard of product in the two countries 
vary in almost exactly the same proportions. 

The difference in cost of manufacturing in France and the 
United States is found to be very close to the difference be- 
tween England and the United States. On the other hand, 
the difference in the cost of the manufacture in the United 
States and Germany is somewhat less. 

Further, it should be pointed out that the statement that 
the difference in the cost of manufacturing cloth is 100 per 
cent, or more does not mean 100 per cent, of the market 
value of the cloth. It merely means that, given the same 
yarn, the cost of weaving and finishing in this country is 
generally somewhat more than double that in England. It is 
impossible to express this difference in relation to the total 
value of the product, since the material going into two 
different articles have the same conversion cost may vary 
widely in value; while, on the other hand, the material for 
the production of exactly the same article may vary widely 
in value at two different periods and the conversion cost re- 
main exactly the same. . . . 



SOMI'] l'lM>L\(iS UN WOOL 355 

Ready-made clothing [i);i;4e ISJ. The investigation into 
the ready-made clotliiiig inilustry shows that tlie cloth is 
the largest element in the clothing produced and is equal to 
one-thirtl of tiie net wholesale selling price. It varies with 
the grades of clothing i)roduced, being highest relatively in 
the cheaper garments. The cost of linings is about 5 per cent, 
of the net wholesale selling price. The total cost of cloth 
and woolen materials, taken as a whole, is equal to about 40 
per cent, of this price. 

lu considering the importance of cloth cost to the wearer 
of clothing, it is necessary to bear in mind the margin be- 
tween wholesale and retail price. The retail price is usually 
50 per cent, or more above the net wholesale price. On this 
basis about 25 per cent, of the price paid to the retailer 
goes to the manufacturer of cloth. 

Taking the industry as a whole, the cost of material, 
labor, and all other expense undergone in converting ma- 
terial into finishetl garments is 80 per cent, of the net whole- 
sale selling price of the finished product. Out of this 20 per 
cent, margin between the total manufacturing cost and the 
manufacturer's net selling price comes selling expense, such 
general expense as cannot be charged directly to manufacturing 
or selling, and prolit. These figures apply particularly to 
men's clothing, where garments are more standardized and 
represent costs more easy to determine. 

In women's garments the cloth is also the largest single 
item. In skirts it is eiiual to 40 per cent, of the net whole- 
sale selling price ; on most cloaks ecfual to between 30 and 
35 per cent. ; on cheap suits it is over 25 per cent. ; and on 
more expensive varieties it falls below 20 per cent. To the 
manufacturer, therefore, cloth is not so important an ele- 
ment of cost in women's clothing as in men's. On the other 
hand, the labor and manufacturing expense are more im- 
portant in women's clothing. The margin remaining to the 
manufacturer of women's garments, over and above the cost 
of materials and expense of converting them into wearing 



350 SOME FINDINGS ON WOOL 

apparel, is somewhat less than in the men's clothing industry, 
but selling expenses are considerably lower for these estab- 
lishments. . . , 

Wages and efficiency [page 22]. The investigation as to 
wages and efficiency covering 35,029 persons and 164 separate 
occupations shows that the earnings of weavers based upon 
actual yardage and piece rates per yard, range from $6 to 
$18 per week, with an average for worsted weavers of $12.36 
for males and $9.54 for females, and for woolen weavers an 
average of $10.63 for males and $10.54 for females. The 
weekly earnings are based on a week of 55.6 hours, the same 
as the average hours for the industry in Great Britain. 

Of the total 7990 scouring, carding, combing, drawing, 
and spinning machines and 12,337 weaving looms investigated, 
78 per cent, of all the machines excepting looms . . . are of 
foreign manufacture and 22 per cent, of American make. It 
is asserted by manufacturers that American-made machines 
for worsted spinning cannot produce the desired results. 
Seventy-seven and one-tenth per cent, of the looms in use 
were made in the United States and 22.9 per cent, in foreign 
countries. 

Of the 35,029 employees, 36.5 per cent, were born in the 
United States and 63.5 per cent in foreign countries. Thirty- 
live and one-tenth per cent, of all employees were of the 
newer immigration from Italy, eastern and southern Europe. 
The supervisory class was made up principally of persons 
born in the United States, the British Isles, and Germany. 

Eighty-three and three-tenths per cent, of the total em- 
ployees had no previous experience in the woolen or other 
manufacturing or mechanical industry before going to work in 
the woolen mills. Fifty and nine-tenths per cent, of these 
came directly to the mill from the school or the home and 32,4 
per cent, had been employed in agricultural, transportation, 
trade, domestic service, and other non-manufacturing occupa- 
tions. About one-sixth (16.6 per cent.) had been in the in- 



SOMi: KIXDIXCS ox wool, 337 

(lustry less Hum txir year and 5:5.!) pi'i- ci'iil. less tlian live 
years. 

Eiglity i)or cent, ol" loom prutlucliuu on worsteds and 70 
per ceut. on wooKmis, with 20 per cent, of loom stoppages on 
worsted and 'M per cent, on woolens wliile weaving, are the 
manufacturers' desired standards of efficiency. The individ- 
ual records kept by the Tail If Board of weavers opera- 
ting 11,080 looms sliow that the weavers operating 4.1 per 
cent, of the worsted looms and 2 per cent, of the woolen looms 
attained a productive efficiency of 90 per cent, and over. On 
24 7 per cent, of worsted and 12.9 of woolen looms the 
efficiency was 80, but less than 90 per cent. On 30.9 per 
ceut. of worsted and 21.6 per cent, of woolen looms the effi- 
ciency was 70 but less than 80 per cent. On 34.1 per cent, 
of worsted and 45.4 per cent, of woolen looms the efficiency 
was 50 but less than 70 per cent. On 6.2 per cent, of worsted 
and 18 per cent, of woolen looms the productive efficiency of 
the weavers fell below 50 per cent. 

Seventy per cent, of the weavers were born in the United 
States, Germany, and the British Isles, and 30 per cent, in 
Italy, eastern and southeastern Europe. Two menders and 
burlers were employed for every four weavers and nine looms 
to correct the imperfections in the woven cloth. Two and 
eighteen one-hundredths per cent, of the yardage produced 
was still imperfect after mending and was sold as seconds. 

The productive efficiency per one man hour for machine 
operatives and machines in the scouring, carding, combing, 
ilrawing, and spinning departments, wnth 168 separate labor 
costs per pound, show wide differences in eflficiency and cost, 
hut indicate in general that the lowest labor costs per pound 
were in mills paying the highest wages. 



FINDINGS ON THE WOOL TARIFF 

[President Taft in submitting to Congress the Tariff Board's report 
on Schedule K, Dec. 20, 1911, made, among other comments, the fol- 
lowing (Report, Wool and manufactures of wool, pp. 4-6) :] 

The report shows that the present method of assessing 
the duty on raw wool — this is, by a specific rate on the grease 
pound (i.e., unscoured) — operates to exclude wools of high 
shrinkage in scouring but tine quality from the American 
market and thereby lessens the range of wools available to 
the domestic manufacturer; that the duty on scoured wool 
of 33 cents per pound is prohibitory. ... 

The report shows in detail the difficulties involved in 
attempting to state in categorical terms the cost of wool 
production and the great diti'erences in cost as between dif- 
ferent regions and different types of wool. It is found, how- 
ever, that, taking all varieties in account, the average cost 
of production for the whole American clip is higher than the 
cost in the chief competing country by an amount somewhat 
less than the present duty. . . . 

The report shows that the duties on noils, wool wastes, and 
shoddy, which are adjusted to the rate of 33 cents on scoured 
wool are prohibitory in the same measure that the duty on 
scoured wool is prohibitory. In general they are assessed at 
rates as high as, or higher than, the duties paid on the clean 
content of wools actually imported. They should be reduced 
and so adjusted to the rate on wool as to bear their proper 
proportion to the real rate levied on the actual wool imports. 

The duties on many classes of wool manufacture are pro- 
hibitory and greatly in excess of the ditference in cost of 
production here and abroad. . , . 

358 



riNDixc.s O.N Tin; wool tariff 859 

Oil tilt' other li;iiul. tlic liiulinus show . . . lliat the prices 
of domestic fabrics are not. raised by tlie lull aiuoiiiit of 
duty. . . . 

Although these duties do not increase prices of domestic 
poods by anythinfj like their full amount, it is none the less 
true that such prohibitive duties eliminate the possibility 
of foreign competition, even in time of scarcity ; that they 
form a temptation to monopoly and conspiracies to control 
domestic prices; that they are much in excess of the dill'erence 
iu cost of production here and abroad ; and that they should 
be reduced to a point which accords with this principle. 

The findings of the board show that in this industry the 
actual manufacturing cost, aside from the question of the price 
of materials, is much higher in this country than it is abroad; 
that in the making of yarn and cloth the domestic woolen or 
worsted manufacturer has in general no advantage in the form 
of superior machinery or more efficient labor to ofTset the 
higher wages paid in this country. The findings show that 
the cost of turning wool into yard iu this country is about 
double that in the leading competing country and that the 
cost of turning yarn into cloth is somewhat more than double. 
Under the protective policy a great industry, involving the 
welfare of hundreds of thousands of people, has been estab- 
li.shed despite these handicaps. 

In recommending revision and reduction I therefore urge 
that action be talcen with these facts in mind, to the end that 
an important and established industry may not be jeopardized. 

The Tarift" Board reports that no equitable method has been 
found to levy purely specific duties on woolen and worsted 
fabrics and that, excepting for a compensatory duty, the rate 
must be ad valorem on such manui'actuies. It is important 
to realize, however, that no flat ad valorem rate on such 
fabrics can be made to work fairly and eft'ectively. Any 
single rate which is high enough to equalize the difference 
in manufacturing cost at home and abroad on highly finished 
goods, involving such labor, would be prohibitory on cheaper 



S60 FINDINGS ON THE WOOL TARIFF 

goods, in which the labor cost is a smaller proportion of the 
total value. Conversely, a rate only adequate to equalize 
this difference on cheaper goods would remove protection 
from the fine-goods manufacture, the increase in which has 
been one of the striking features of the trade's develop- 
ment in recent years. I therefore recommend that in any 
revision the importance of a graduated scale of ad valorem 
duties on cloths be carefully considered and applied. 



THE INTERSTATE COi\r]\rERCE ACT 

["TuE Act to Regulate "Commerce" was approved Feb. 4, 18S7, ami 
went into effect April 5, lSiS7. It was amended slightly in 1885), and 
11)08, and greatly in IDOG and again in U)l(). Below are given some 
of the most important sections entire, other whole paragraplis, and 
a syllabus of the rest of the act. The dates of the acts in which the 
several features first occurred are in brackets preceding each significant 
statement, thus indicating the more important clianges and the growth 
of the Act.] 

§ 1. (As amended June 29, 1906, April 13, 1908, and June 
18, 1910.) [1887] That the provisions of this Act shall 
apply to any [1906] corporation or any person or persons 
engaged in the transportation of oil or other commodity, ex- 
cept water and except natural or artificial gas, by means of 
pipe lines, or partly by pipe lines and partly by railroad, or 
partly by pipe Hues and partly by water, and [1910] to tele- 
graph, telephone, and cable companies (whether wire or wire- 
less) engaged in sending messages from one State, Territory, 
or District of the United States or to any foreign country, 
who shall be considered and held to be common carriers 
within the meaning and purpose of this Act, and to any 
1 1887] common carrier or carriers engaged in the transpor- 
tation of passengers or property wholly by railroad (or partly 
by railroad and partly by water when both are used under a 
common control, management, or arrangement for a con- 
tinuous carriage or shipment), from one State or Territory 
of the United States or the District of Columbia, or [1906] 
from one place in a Territory to another ])lace in the same 
Territory, |1887] or from any place in the United States 
to an adjacent foreign country, or from any place in the 
United Slates through a foreign country to any other ])lace 

861 



362 THE INTERSTATE COMMERCE ACT 

in the United States, and also to the transportation in like 
manner of property shipped from any place in the United 
States to a foreign country and carried from such place to 
a port of transshipment, or shipped from a foreign country 
to any place in the United States and carried to such place 
from a port of entry either in the United States or an adja- 
cent foreign country: Provided, however. That the pro- 
visions of this Act shall not apply to the transportation of 
passengers or property, or to the receiving, delivering, storage, 
or handling of property wholly within one State and not 
shipped to or from a foreign country from or to any State 
or Territory as aforesaid, [1910] nor shall they apply to the 
transmission of messages by telephone, telegraph, or cable 
wholly within one State and not transmitted to or from a 
foreign country from or to any State or Territory as afore- 
said. 

[1906] The term "common carrier" as used in this Act 
shall include express companies and sleeping-car companies. 
[1887] The term "railroad" as used in this Act shall include 
all bridges and ferries used or operated in connection with 
any railroad, and also all the road in use by any corpora- 
tion operating a railroad, whether owned or operated under 
a contract, agreement, or lease, [1906] and shall also include 
all switches, spurs, tracks, and terminal facilities of every 
kind used or necessary in the transportation of the persons 
or property designated herein, and also all freight depots, 
yards, and grounds used or necessary in the transportation 
or delivery of any of said property; and the term "trans- 
portation" shall include [1906] cars and other vehicles and 
[1887] all instrumentalities [1906] and facilities [1887] of 
shipment or carriage, [1906] irrespective of ownership or of 
any contract, express or implied, for the use thereof and all 
services in connection with the receipt, delivery, elevation, 
and transfer in transit, ventilation, refrigeration or icing, 
storage, and handling of property transported ; and it shall 
be the duty of every carrier subject to the provisions of this 



TilK INTIi;RSTATK COMMKRCE ACT 3G3 

Act to provide aiul furuisli siu'h transportation upon reason- 
able reciiiest Iherel'ur, and to establish through routes and 
just and reasonable rates applicable thereto; [1910] and to 
provide reasonable facilities lor operating such through routes 
and to make reasonable rules and regulations with respect 
to the exchange, interehange, and return of cars used therein, 
and for the oi)eration of such through routes, and providing 
for reasonable compensation to those entitled thereto. 
[1887] All charges made for any service rendered or to be 
rendered in the transportation of passengers or property, 
[1910] and for the transmission of messages by telegraph, 
telephone, or cable, [1887] as aforesaid, or in connection 
therewith, shall be just and reasonable; and every unjust 
and unreasonable charge for such service [1906] or any part 
thereof [1887] is prohibited and declared to be unlawful: 
[1910] Provided, That messages by telegraph, telephone, or 
cable, subject to the provisions of this Act, may be elassihed 
into day, night, repeated, unrepeated, letter, commercial, 
l)ress, Government, and such other classes as are just and 
reasonable, and diU'erent rates may be charged for the dif- 
fei-ent classes of messages: And Provided further, That 
nothing in this Act shall be construed to prevent telephone, 
telegraph, and cable companies from entering into contracts 
with common carriers for the exchange of services. 

liniO. Classilication must be just and reasonable, so also must the 
regulations and practices such as marking, packing, delivery, etc.] 

11SS7. Free passes and free transportation proliibited. 1906. De- 
tails of excepted classes, as cmi)loyees, charitable workers, etc.] 

[190G. The Commodities Clause.] From and after May 
first, nineteen hundred and eight, it shall be unlawful for any 
railroad company to transport from any State, Territory, or 
the District of Columbia, to any other State, Territory, or the 
District of Columbia, or to any foreign country, any article 
or commodity, other than timber and the manufactured prod- 
ucts thci-eof, manufactured, mined, or i)roduced by it, or 



364 THE INTERSTATE COMMERCE ACT 

under its authority, or which it may own in whole or in part, 
or in which it may have any interest, direct or indirect, except 
such articles or commodities as may be necessary and intended 
for its use in the conduct of its business as a common carrier. 

[1906. Switch Connections.] Any common carrier sub- 
ject to the provisions of this Act, upon application of any 
lateral, branch line of railroad, or of any shipper tendering 
interstate traffic for transportation, shall construct, main- 
tain, and operate upon reasonable terms a switch connection 
. . . where such connection is reasonably practicable and can 
be put in with safety and will furnish sufficient business to 
justify the construction and maintenance of the same; and 
shall furnish cars for the movement of such traffic to the 
best of its ability without discrimination in favor of or against 
any such shipper . . . [1906 Switch connections may be 
ordered by the Commission.] 

§ 2. [1887. Unjust discrimination defined and forbidden.] 
That if any common carrier subject to the provisions of this 
Act shall, directly or indirectly, by any special rate, rebate, 
drawback, or other device, charge, demand, collect, or receive 
from any person or persons a greater or less compensation for 
any service rendered, or to be rendered, in the transportation 
of passengers or property, subject to the provisions of this 
Act, than it charges, demands, collects, or receives from any 
other person or persons for doing for him or them a like and 
contemporaneous service in the transportation of a like kind of 
traffic under substantially similar circumstances and condi- 
tions, such common carrier shall be deemed guilty of unjust 
discrimination, which is hereby prohibited and declared to be 
unlawful. 

§ 3. [18S7. Undue or unreasonable preference or advantage for- 
bidden. Facilities for interchange of traffic. Discrimination between 
connecting lines forbidden. 1903. By Elkins' Act only one shipment 
at less than published rate necessary to constitute a violation.] 

§ 4. [The Long and short haul section.] (As amended 
Jime 18, 1910.) [1887] That it shall be unlawful for any 



THE INTERSTATE COMMKUCE ACT 305 

coiuiiu)!! (.'Jirricr subject to the provisions of this Act to charge 
or roi-oivc any greater compensation in the aggregate for the 
transportation of passengers, or of like kind of property, 
[1910 "under substantially similar circumstances and con- 
ditions" omitted] for a shorter tlian for a longer distance 
over the same line or route in the same direction, the shorter 
being included within the longer distance, [1910] or to charge 
any greater compensation as a through route than the ag- 
gregate of the intermediate rates subject to the provisions of 
this Act; [1887] but this shall not he construed as authorizing 
any common carrier within the terms of this Act to charge 
or receive as great compensation for a shorter as for a longer 
distance: Provided, however, That upon application to the 
Interstate Commerce Commission such common carrier may 
in special cases, after investigation, be authorized by the 
Commission to charge less for longer than for shorter distances 
for tiie transportation of passengers or property ; and the 
Commission may from time to time prescribe the extent to 
which such designated common carrier may be relieved from 
the operation of this section: [1910] Provided, further, 
That no rates or charges lawfully existing at the time of 
the passage of this amendatory Act shall be required to be 
changed by reason of the provisions of this section prior to 
the expiration of six months after the passage of this Act, 
nor in any case where application shall have been filed before 
the Commission, in accordance with the provisions of this 
section, until a determination of such application by the 
Commission. 

[1910] ^Yhenever a carrier by railroad shall in competition 
with a water route or routes reduce the rates on the carriage 
of any species of freight to or from competitive points, it 
shall not be permitted to increase such rates unless after it 
shall be found that such proposed increase rests upon changed 
conditions other than the elimination of water competition. 

§ 5. [1887. The anti-poolinir section.] That it shall ba 
unlawful for any common carrier subject to the provisions 



366 THE INTERSTATE COMMERCE ACT 

of this Act to enter into any contract, agreement, or com- 
bination with any other common carrier or carriers for the 
pooling of freights of different and competing railroads, or 
to divide between them the aggregate or net proceeds of the 
earnings of such railroads, or any portion thereof; and in- 
any case of an agreement for the pooling of freights as afore- 
said, each day of its continuance shall be deemed a separate 
offense. 

§ 6. [1887, amended 1889, 1906, 1910.. 1887. Printing and posting 
of schedule of rates, fares and charges, including rules and regulations 
affecting the same (1906) and icing, storage and transit charges and 
freight classiiications; stricter details. 1887. Freight carried through 
a foreign country subject to customs duties in case of failure to publish 
through rates. 1906. Thirty (formerly ten) days' notice must be given 
of any change (formerly advance) in rates, etc. Proviso: Commission 
may modify requirements of this section. 1906. Joint tariffs must 
specify names of carriers participating. 1887. Every common car- 
rier shall file copies of all contracts, agreements, etc. 1906. Fur- 
ther sharpening of requirement to publish rates; transportation pro- 
hibited until rates published; prohibited rates not to be deviated from. 
Penalty for failure to comply with regulation. 1910. Carriers must 
furnish written statement of rate. Damages for misstatement.] 

§ 7. [1887. Carriage of freights from place of shipment to place of 
destination must be continuous; contracts to evade forbidden.] 

§ 8. [1887. Liability of common carriers for damages.] 

§ 9. [1887. Persons claiming to be damaged may elect whether 
to complain to the Commission or bring suit in a United States court. 
Officers of defendant may be compelled to testify.] 

§ 10. [1887. Penalties for violations of Act by carriers or when 
the carrier is a corporation, its ofKcers, agents, or employees; for 
false billing, etc., by carriers, their officers or agents; for false billing, 
etc., by shippers and other persons; for inducing common carriers to 
discriminate unjustly: fine and imprisonment. Joint liability with 
carrier for damages.] 

§ 11. [1887. Creating the Interstate Commerce Commission; 
changed in 1906 by § 24.] 

§§ 12, 13, 14. [1887, variously amended in 1889, 1891, 1906, and 
1910; empowers the Commission to execute and enforce the Act, lay 
down methods of procedure, etc.] 

§ 15. [Original section wholly superseded June 29, 1906, and 
amended June 18, 1910. 1906. Powers of the Commission. Com- 



TllK INTKKSTA'l'F, TOMMKUCE ACT 307 

mission niny dotonniiic nnd proscribe just and reasonable rates and 
claasilications to be observed iis maximum cliarges, and just and rea- 
sonable rej;:!! hit ions or practices; may order carriers to cease and 
desist from full extent of violations found. Orders of the Commission 
efTective as proscribed, but in not loss than thirty days. Orders shall 
■Continue in force not exceeding two years, unless suspended or set 
aside by Commission or court. When carriers fail to agree on divisions 
of joint rate, Commission may prescribe proportion of such rate to 
be received by each carrier. 1910. Commission may investigate new 
schedules, may suspend Ihoin and extend suspension. Burden of proof 
on carrier a^ to reasonableness of increased rates. 1906. Commission 
may establish through routes and joint rates and classifications. 
19111. Limitation on through route power. Siiipper may select route. 
I'lilawful to give or receive information relative to rivals' sliipments; 
exceptions; penalty. 1906. Commission may determine just and rea- 
sonable charge or allowance for service rendered by owner of property 
transported or for any instrumentality furnished by such owner and 
used in such transportations. Enumeration of powers in this section 
not exclusive.] 

§§ 16-2.3. [Stipulate method of award, of appeals to courts, forms 
of procedure, etc.] 

§ 24. [Enlarging the Commission to seven members (not more than 
four of one political party) with term of seven years. Compensation 
ten tliousand dollars annually.] 

[By Act of June 18, 1910, a Commerce Court was created to which 
was given the jurisdiction possessed by circuit courts over appeals 
to enforce or to annul the Commission's orders, certain cases under 
the Elkins' Act, and mandamus proceedings. In June, 1912, Congress 
voted to abolish the Commerce Court.] 



RAILROAD VALUES AND RATES 

[No railroad rate question ever brought before the Interstate Com- 
merce Commission, it seems probable, has exceeded in importance that 
involved "in the matter of proposed advances in freight rates by 
carriers," decided Feb. 22, 1911. The question was as to the justness 
and reasonableness of certain proposed (increased) rates, considered 
as a whole, affecting a large part of the traffic throughout a large 
part of the country. The inquiry was divided into two parts, the one 
affecting the Western roads, and the other the Eastern roads, and 
separate decisions were rendered; but fundamentally one issue was 
involved, the right of the railroads in these territories, acting in 
unison and exercising a certain degree of monopoly power, to put into 
effect the new rates proposed. The decision of the Commission, which 
was in both cases unanimous, was adverse to the railroads. It had 
been generally predicted by railroad advocates that if an adverse de- 
cision were rendered, it would greatly depress railroad securities. A 
slight immediate decline did occur, followed by a quick recovery, and 
later by an advance. The opinions of the Commission, and the evi- 
dences presented showing the growing revenues and generally pros- 
perous conditions of the roads, served as a certificate of soundness ac- 
cepted by investors. 

Among the far-reaching questions discussed in the decisions was that 
whether rates may justly be increased to earn dividends either on 
undistributed earnings in the past or on the increment of land values 
in city terminals or on the rights of way. This question is to some 
extent involved in every case of rates as connected with franchise 
values of public-service corporations. Neither the courts nor the com- 
missions seem as yet to have entirely solved the problem. The Inter- 
state Commerce Commission said in the decision on the Western Roads 
case (Senate Document, No. 725, 61st Congress, 3d session, in 10 
volumes; extracts from pp. 5382-5391):] 

The Burlington's claim of "legal right." The Chicago, 
Burlington & Quincy Railroad Co. presents another ground of 
justification for advancing the rates under consideration. It 
is entitled "as a matter of legal right to a fair return upon 

368 



I{AILI{OAT> VAMi:S AND KATES 309 

the actual value of its property used lor transportation, 
w liic'li value, from whatever source iu the past created, is 
measured in its ease by at least the cost of presently rei)ro- 
(hicing its physical plant. To obtain sueh fair return, it 
necessarily and e(|ually is entitled to charge in the aiigrcgate 
rates of transportation which, subject to the one limitation 
that the particular component rates are themselves reason- 
able and just to tlie s]ii[iper, will produce such reasonable re- 
turn upon the property employed." 

From this postulate the. Burlington proceeds to the con- 
clusion that it does not now enjoy a fair return, and finding 
itself confronted with the need of additional revenues to meet 
wage advances and otlier operation and maintenance charges 
and to otl^'set diminishing net earnings, it may, as a matter 
of legal right, advance the rates upon the commodities se- 
lected, iiuismuch as the advanced rates would be reasonable 
in view of the value of the service to the shipper. Logically 
it refuses to have its position regarded as an attempt to 
justify these higher charges, for in its theory it does not 
need to justify them, and what it presents to the commission 
is termed as "explanation of them and of the occasion for 
their imposition." 

Here is a proposition at once novel and searching. The 
Burlington road may be taken as representative in that terri- 
tory. Its traffic is diversified; its capitalization compara- 
tively conservative; its credit excellent; its tonnage large; 
and management capable. When asked by the Government 
to explain why it has increased its charges, its reply is that 
it has a right to do so because it is not now receiving a fair 
return upon the value of the property which it uses; value 
being estimated cost of reproduction. This leads to a few 
questions: (1) AYhat did the Burlington road cost those who 
built it? (2) "What is its present value? (3) Whence came 
this value? (4) Is such increase in value a basis for increase 
in rates? 

The controller of the company- has given us the answer to 

24 



370 RAILROAD VALUES AND RATES 

the first question. He testified that the total investment in 
the property from the sale of stocks and bonds was $258,- 
000,000. 

To the second question the company answers that its present 
value is $530,000,000. 

The difference between these two figures represents (1) 
investment in the property made out of earnings; (2) in- 
creased value of right of way and terminals owned by the 
company. This is the answer to the third question. 

The position therefore taken by the Burlington is that it 
has a right vested in it by law to add to its freight charges 
such amounts as will yield at the present time a fair rate o£ 
interest upon more than $270,000,000 which does not repre- 
sent either the proceeds from the sale of a share of stock or a 
dollar of borrowed money, so long as the rate to the shipper 
is not unreasonable. 

This contention opens up the broadest field of inquiry, 
as to the questions of law and fact upon which the commission 
could enter. We have before us a property constructed by 
private persons under authority of Government to be devoted 
to a public use. These private persons invest in that property 
the issues of certain sales of stocks or bonds amounting to 
$258,000,000. They capitalize this property at $320,000,000, 
one-third of which capitalization is represented by stock and 
two-thirds by bonds; they carry upon their books the cost of 
road and equipment at $364,000,000; and they now insist 
that the law gives them the right to a return upon $530,000,- 
000. ... 

Under its present capitalization, $320,000,000 ($110,000,- 
000 of which was in stock), this corporation had available for 
distribution as dividends $13,975,620 in the year 1910, or 12.61 
per cent, on its capital stock outstanding. "This," says the 
Burlington, *'is an insufficient return, because it is based 
upon a capitalization which represents much less than value, 
and the courts have decided that under the Constitution prop- 
erty of this character is entitled to a reasonable return upon 



i;.\ll.U(»Al) VALl KS AM) KA'I'KS 371 

tlu' pri'stMit l';iir' value o\' its [iropci! y tiiiitloycd in the service 
ol' tlie i)ublic." 

lu support ol" tliis proposition the leatliiig case of Sniythe 
V. Ames (167 U. S., 446) is cited: 

Wo liolil, l)o\vcvor, tliut tlic haais of all caUiilationa as to tlie rca- 
Koiml)leiicss of rates to be cliargod by a lorpoiatioii inaiiitaiiiing a 
liigiiway under legislative sanction must bo the fair value of the 
proporly being used by it for the oonvonioncc of tiio public. 

Again, iu Wilcox v. Consolidated Gas Co. (212 U. S., 
19): 

It is no longer open to dispute that under the Constitution what 
the company is entitled to demand in order that it may liave ju.st com- 
pensation is a fair return upon the reasonable value of the property at 
the time it is being used by the public. 

Relying upon these cases, the Burlington's i'uU position is 
that it is immaterial how the property was acquired, what it 
originally cost, whether the present value may be claimed to 
be in part the result of earnings put back into the property 
in betterments, or is due to growth of trat^c and development 
of the country served. "The sole in([uiry open at this time is 
the actual fair value of the railroad as it exists to-tlay as a 
going concern. The company cannot be lawfully required to 
take less than a fair and reasonable return upon this value. 
To be denied such return will be to appropriate in i)art a 
value that belongs to the owners for the use and benetit of 
the public without just compensation therefore being first paid 
or secured." [Cases cited.] 

Notwithstanding these decisions, it remains for the Supreme 
Court yet to decide that a public agency, such as a railroad 
created by public authority, vested with governmental au- 
thority, may continuously increase its rates in proportion to 
the increase in its value, either (1) because of betterments 
which it lias made out of income, or (2) because of the growth 
of the property in value due to the increase in value of 
the land which tiie company owns. 



372 RAILROAD VALUES AND RATES 

If the position of the Burlington is sound and is a precise 
expression of what our courts will hold to be the law, then, as 
we are told, there is certainly the danger that we may never 
expect railroad rates to be lower than they are at present. 
On the contrary, there is the unwelcome promise made in this 
case that they will continuously advance. In the face of such 
an economic philosophy if stable and equitable rates are to be 
maintained, the suggestion has been made that it would be 
wise for the Government to protect its people by taking to 
itself these properties at present value rather than await the 
day, perhaps 30 or 50 years hence, when they will have multi- 
plied in value ten or twenty fold. 

The books of the Burlington road now show some $76,000,- 
000 in surplus, which is the accumulation from operating reve- 
nues of many years. This surplus is not all held in the form 
of cash, but has in part been put into the property in one 
form or another of additions and betterments. The stock- 
holders, it is said, have chosen to waive their right to dis- 
tribute this to themselves in the form of dividends and have 
reinvested it in the property. Without questioning the right 
of the stockholders to exercise this option, and without de- 
nying to them the right to a return upon any investment 
which they make, this much seems clear : That if the invest- 
ment in a railroad at a given time is $100,000,000, upon 
which it yields a net revenue of $25,000,000, the stockholders 
may take that $25,000,000 entirely to themselves. But if 
they choose to take but one-half of this amount as their re- 
turn upon their investment and to reincorporate in the same 
property the remaining half of the net earnings, they may 
not for this reason increase rates during the succeeding year so 
as to give them a return upon $112,500,000. It is idle to 
spend time in nice processes of reasoning over such a con- 
dition of fact. Public policy — the welfare of the State — 
forbids the adoption of any such working theory. Because 
of the addition of the $12,500,000 a carrier may be entitled to 
an additional return upon the property, but is it entitled to 



KAll.UOAD \AUKS AND KATKS 873 

increase rates so as Id make lliat retuni .' ll" the stockholders, 
as in the last sense trustees for the public, exercise their 
right to reiiivcst the ooinpany's nioucy in the iuiprovenient of 
tile property, the company may be entitled to an earnin<^ upon 
the value of that property without it in any way following 
that the rates out of which this surplus was accumulated shall 
still further be increased so as to proviile that additional in- 
come. 

Any new money put into the property, whether derived 
from the sale of securities or from surplus, whieli mitiht have 
been appropriated to dividends, represents new value — an ad- 
dition to the property — and on this addition the stockholders 
interested are entitled to a reasonable return if that can be 
had for an additional service given, but it is not equitable that 
because the directors of a corporation see fit to distribute to 
the stockholders less than the amount which the company 
earns and may be appropriated to dividends, the shippers 
who made this large dividend and surplus possible shall be 
increasingly taxed in geometrical progression to make return 
upon it. New improvements should bring new revenue. The 
risk of the stockholders in investing their money in these im- 
provements is the same risk that they took when they invested 
their original funds in the original property. (San Diego 
Land & Town Co. v. National City, 78 Fed. Rep. 87). . . . 

The shippers . . . cannot be compelled to continuously pay 
higher rates because the directors of the company have not 
seen fit to distribute their full earnings in dividends. , . , 
[Otherwise] it is within the power of a board of directors to 
indefinitely increase the shipper's rates, for all that is needed 
is that the railroad in one year make an exceedingly large 
return and after paying a dividend issue stock to the stoek- 
holders equivalent to the balance of the unappropriated 
operating revenue available for dividends, and this money, 
being invested in the i)r()perty, creates more value which the 
shipper must care for. [Other examples here discussed.] . . . 

The Supreme Court in the Tift ease {^upra) held that a 



374 RAILROAD VALUES AND RATES 

railroad could not increase lumber rates because it was buying 
new equipment out of current earnings, although by so doing 
it was adding to the value of its property, and doubtless in- 
creasing the facility of movement of the lumber traffic. This 
principle makes against the contention of the Burlington di- 
rectly, and we see no reason why it may not be accepted as 
settled law. 

The record does not show nor does the Burlington contend 
that its stockholders have not in the past been remunerated 
adequately upon the basis of their then-owned property. Its 
position is that the property having grown in value with the 
growth of the West and the increase in traffic, it may advance 
rates up to the point that the shipper can afford to pay and 
under which the traffic will move. 

We are not here dealing with the value of this property, 
nor with the definition of value, whether value means in- 
vestment, cost of reproduction, or something else. Our posi- 
tion is that a railroad may not increase rates upon shippers 
for the reason and as an outgrowth of the fact that it has ac- 
cumulated out of rates a balance of profit which has been in- 
vested in the property. This investment must take care of 
itself. It must bring a return for itself either in increased 
traffic or in the reduction of expenses of operation. There is 
no justification for the investment of this surplus if it is to 
have the effect of increasing the rates upon the shippers over 
the original line. If the theory is to be recognized that by 
increasing the value of their property, by putting back opera- 
ting revenue into the property, a carrier may as a legal right 
increase rates, then the shipper is worse off each time he 
pays a rate which allows a revenue over and above a reasonable 
return upon the original investment. 

Herein we have outlined the full position of the railroad 
and the opposing position. We do not regard the decision of 
this question as vital to this proceeding, however, accepting as 
we do for the purposes of this discussion the tenability of the 
Burlington's theory. 



RAILROAD VALUES AND RATES 875 

We now turn Tor a nioiiK'nt to coiisick'r tlie added value of 
railroad proi)erty by reason of the increase in the value of the 
lauds held as terminals in cities and rights of way. Out of 
the dilference between the original investment of $258,000,- 
000 and the estimated present value of $5;]0,0()0,000 it has 
been estimated that the increase in land values amounts to ap- 
proximately $150,000,000. We may agree with the conten- 
tion of the Burliuyton that it is no concern of ours as to 
whether these lands were obtained by private or public dona- 
tion in whole or in part, but a larger ([uestion of public con- 
cern is involved — the legal right of a carrier to continuously 
increase rates because of the growth of the community which 
gives this added value to the land over which the railroad runs. 
The States of Illinois, Iowa, South Dakota, Kansas, and 
Nebraska have not reached their maximum development. 
Their total population under the census of 1910 was but 
32. G6 per square mile, whereas the population of the States im- 
mediately to the east — Indiana, Ohio, New York and Pennsyl- 
vania — was 143.23 per square mile. AVe have seen the popu- 
lation of the city of Chicago alone grow in 20 years from 
1,105,540 to 2,185,283. To-day a road is built upon a prairie 
farm; next year it runs through a Kansas village; 20 years 
hence this same village may be a city of half a million. 

It is unquestionable that Kansas would not enjoy the popu- 
lation that she has or the prosperity that is hers without the 
presence of the railroads, and those men of prophetic vision 
who projected those roads and invested their capital therein 
are not to be denied a share in the wealth which they have so 
largely helped to create. But as these lands increase in value 
with the growth of the communities which they serve should 
not this larger share coming to the railroad arise out of the 
operation of that property and the increase in its traflfic rather 
than by the imposition of a new burden of tolls upon those 
wlio use their road? This question is not of paramount im- 
portance in this case, but, it is urtxed, may become one of su- 
preme moment if the carriers insist upon a right to increase 



376 RArLROAD VALUES AND RATES 

rates in proportion to increasing land values. In a very real 
sense these added land values do not come to the railroad as a 
railroad, but as an investor in land which has been dedicated 
to a public use; and, being so dedicated, it may be strongly 
urged that the increment added thereto from year to year by 
communal growth should not necessitate an imposition of ad- 
ditional rate burdens upon the public. Again, it is said that 
the community increasingly taxes these lands upon their com- 
mercial value as real estate, and that therefore the public is 
stopped from denying their right to return upon such basis of 
value. Without delaying to consider this matter it may be 
said that in this case it has been discovered that the ratio 
of taxes to operating revenues of the carriers remains ap- 
proximately the same throughout the years. While the abso- 
lute tax somewhat increases the relative tax does not increase. 
Furthermore, such facts as we have been enabled to gather 
tend to indicate that land used for railroad purposes does not 
increase in value out of proportion to the increase in the value 
of the property as a whole. 

Whatever the true economic or legal view may be as to the 
right of a carrier to consider the increase in value of its land 
as a part of the value upon which it is entitled to a reasonable 
return, such increase in value does not of itself establish the 
right of a carrier to increase rates upon a given service. Cer- 
tainly if the Supreme Court may decline to lay down the abso- 
lute rule that "in every case failure to produce some profit to 
those who have invested their money in the building of a 
road is conclusive that the tariff is unjust and unreasonable" 
(Reagan v. Farmer's Loan & Trust Co., 154 U. S. 412), it is 
a conservative statement of the law to hold that a railroad 
may not increase the rates upon a number of commodities 
solely because its real estate has risen in value. 

The Burlington has assumed that the true basis of a rail- 
road value was the cost of reproduction, and it may not be 
unworthy of our attention to consider the reproduction value 
of this property as estimated by the officials of the Burling- 



KAILKOAl) VAF-ri:S AM) KA'IIIS 877 

ton aiRl i^rosiMit llie n-cord iii.ulc tlici-ciii ;i.s to the cost of 
building a load in this section of our country. It is said, and 
with no littK' supporting reason, that tliose who i)r()ph('sy or 
fear tliat rates will constantly ascend from this time forward 
because of the increasing value of lands are mistaken; that no 
such results would take place because increasing earnings 
would care for increasing land values. This certainly should 
be so if the property is situated so that it can avail itself of 
the greater volume of traffic produced by a richer and more 
productive territory. At any rate it is fair to say that the 
time has not yet come when values have so increased that they 
menace existing rates, whatever may be the support they give 
to the contention that rates should not be reduced. [Page 
5389.] . . . 

[Page 5391] The trend of the highest judicial opinion 
would indicate that we should accept neither the cost of repro- 
duction, upon which tlie Burlington's estimate of value is 
made, nor the capitalization w^iich the Santa Fe accepts as ap- 
proximate value, nor the price of stocks and bonds in the 
market, nor yet the original investment alone, as the test of 
present value for purposes of rate regulation. Perhaps the 
nearest approximation to the fair standard is that of bona 
fide investment — the sacrifice made by the owners of the prop- 
erty — considering as part of the investment any shortage of 
return that there may be in the early years of the enterprise. 
Upon this, taking the life history of the road through a num- 
ber of years, its promoters are entitled to a reasonable return. 
This, however, manifestly is limited; for a return should not 
be given upon wastefulness, mismanagement, or poor judg- 
ment, and always there is present the restriction that no more 
than a reasonable rate shall be charged. 

(An interesting item in tliis connection is clipped from the financial 
columns of tlie New York Times of July 10, 1912. — En. 

Blrli.ngton's Fat TEEAStUY. — Xo one appreciates more than J. J. 
Hill that one cannot eat his cake and have it. For several years 
etockiiohlers of the Great Northern and Nortiiorn Pacilic have been 



378 RAILROAD VALUES AND RATES 

greedily watching the increasing profit and loss surplus of the 
Chicago, Burlington & Quincy, jointly owned by the two roads. When 
the Burlington was earning II per cent, they felt that the time had 
come for it to pay something more than the interest on the cost of 
its ownership. When it began to show from 13 to 14 per cent, they 
saw the possibility of a "melon" in its surplus over the 8 per cent, 
disbursed on its stock. In 1911 the road earned 15 per cent, and 
still paid only 8 per cent. In the period closed with June 30, after 
a very severe winter and other unfavorable conditions which left 
some of the transcontinentals with a deficit after dividends, the 
Burlington earned about 13% per cent, on its $110,000,000 of stock. 
The reason this company is able to continue to earn a large balance 
over dividends in spite of bad weather or business depression is that 
the management did not embrace the first opportunity to increase 
the payment on its shares. Instead, the surplus was plowed back 
into the property, as railroad men say. It was used for improvements, 
which are now earning a handsome return on the uncapitalized in- 
vestment. In the Burlington the Northern Pacific and Great Northern 
have a sheet anchor which would enable them to weather a bad year 
without reducing their dividends. So far the Hill boards have shown 
no disposition to cut into the Burlington's surplus. 



RAILROADS AS NATIONAL ASSETS 

[The Interstate Commerce Commission in its decision on "Advance 
of rates by carriers, in ollicial classification territory" (Eastern roads), 
Feb. 22, 1911, weighed somewhat tiie question as to tlie ultimate 
equities in the growing railroad surpluses and increments of value 
in the United States. After considering the case presented by sucli 
improvements as the elevation of tracks, involving large expenditures 
for the benefit of the public, the Commission says: "It is difficult to 
see how it [the railroadj can, upon the theory of the Yellow Pine 
case, charge the entire expense of the improvement to the public through 
iiigher rates." It then continues (Senate Document, 725, Gist Con- 
gress, 3d session, p. 5459): J 

Where lies the difference between a reveniie-prodncing and 
a uon-revenue-producing improvement? So long as the im- 
provomeut is for the I'ature the present must not be entirely 
taxed to provide it. The elevation of those tracks has added 
to the cost of the railroad; the value of the property which 
that company is using for the public benefit has been en- 
hanced, and this justifies it in demanding from the public a 
greater return than formerlj% but not in tlemanding the price 
of the improvement itself. 

While this would seem to be the law of the situation, there 
is a suggestion of public policy which might under some condi- 
tions lead to a different conclusion. It is a wise thing for 
a nation as well as for an individual to lay up something for 
the future. This Nation in time to come must engage in ac- 
tive commercial competition with the rest of the world. We 
must manufacture and sell against other nations. Railway 
rates will enter as an important factor into that competition. 
Not only the rate upon the raw material to the factory anil 
upon everything which enters into the cost of living will be 
of consequence, but also the rate from the factory to the jtort. 

379 



3S0 RAILROADS AS NATIONAL ASSETS 

Germany and France to-day use their railroads to assist the 
home manufacture as against his foreign competitor by al- 
lowing a special rate upon articles for export. 

In the past we have enjoyed cheap raw materials. Our food 
has been cheap ; our coal and our ores have been near the sur- 
face; our lumber has been plentiful. These resources are 
being exhausted; the cost of food is increasing; our forests 
are being depleted. We must go deeper for our coal. All 
this will render the cost of production more expensive, and it 
might be wise to lay up in our railroads a fund which should 
be of assistance to future generations in offsetting this 
tendency to increase the price, were there any assurance that 
the fund when provided could be made available. There is 
the gravest doubt upon this point, for the reason that what- 
ever is invested in these properties from earnings may belong, 
not to the public which has paid for it, but to the stock- 
holders who have already received a full return upon their in- 
vestment in the way of a dividend. 

The president of the Pennsylvania Co. testified that since 
1887 his company had put into the Pennsylvania lines east 
of Pittsburgh $262,000,000 from earnings. During all that 
time this company has also paid to its stockholders munificent 
dividends. Now to whom belongs this $262,000,000, a sum 
which, according to the statistical report of the Pennsylvania 
Railroad Co. to this commission for the year ending June 30, 
1910, equals nearly two-thirds of the total cost of construction 
of the 2,123 miles owned by that company ? 

Suppose this commission were required to fix a value upon 
the Pennsylvania lines east of Pittsburg. Could any distinc- 
tion be made between this sum which has accrued from the 
operation of the property and what has been paid in other 
sources ? 

We are not required at this time to express an opinion upon 
that point. What the claim of the railroads will be when 
the matter finally comes to an issue is well shown by a ques- 
tion which was asked upon the argument and answered by that 



I{.\ILK(».\1>S AS NA'IMOXAI- ASSKTS 381 

attorney who \v;is ur^Miii,' inosL slroii^ly tlir i-i^lil of the i-;iil- 
road to lu'i'uinuhitt' a siii'{)Ius for this purpose: 

Question. The popular idea seems to bp tliat tlicsp ])ropprtios ought 
to be pliysicnlly valued, and that the rate should be determirud by 
the value of the property so fixed. In that case, would the .^urplu.s 
be entitled to be appraised as a part of the value? 

Answer. As of the date that sueh a valuation takes place, the 
property as it stands belongs to the stockholders. That has been in 
niTordance with the policy of the Government, and it would take a 
change in the policy of the Government to change that legal situation. 
So I think the valuation would necessarily be on the property as it 
stands. 

In 9 I. C. C. Rep. 382, 417, the commission, in considering 
the financial condition of tlie Lake Shore & Michigan South- 
ern Railway said : 

The Lake Shore & Michigan Southern, on June 30, 1901, owned a 
majority of tlie capital stock of its competitor, the New York, Chicago 
& St. Louis Railroad Co., a majority of the capital stock of its con- 
nection, tiie Pittsburg & Lake Erie Railroad Co., almost one-half of 
the capital stock of the Lake Erie &, Western Railroad Co., and 
$11,224,000 of the capital stock of the Cleveland, Cincinnati, Chicago 
& St. Louis Railway Co., besides smaller holdings in other companies. 
These stocks had been acquired^ in addition to tiie payment of dividends 
not less than 6 per cent, for many years, out of net earnings. During 
the year 1002 it purciiased, apparently out of surplus, $4,728,200 of 
the capital stock of tlie Indiana, Illinois and Iowa Railroad Co., the 
entire capital being $5,000,000. 

This company after paying 7 per cent, dividend to its stockholders 
lias a surplus each year suflicient to buy the control of a very consider- 
able railroad. Before holding that its revenues ought to be further in- 
creased, or that the Government ought not to exercise any supervision 
over those revenues, it may be well to consider what the bearing of 
tliis process, continued for half a century, is to be upon two of the 
great economical problems Wfore us, namely, the distribution of 
wealth and the control of tiie avenues of transportation. 

The carriers in the proceeding now before us have claimed 
that they should be allowed to invest in improvcinciits and ad- 
ditions to the property an aiiiouiit eijual to that paid by way 



382 RAILROADS AS NATIONAL ASSETS 

of dividends to stockholders. In the year 1910 railroad divi- 
dends aggregated $405,131,650. If this sum were to be in- 
vested in our railways annually for the next half century, it 
would amount at the expiration of that period to $20,256,582- 
500, not regarding the item of interest. This sum is far in 
excess of the present total capitalization of our railroads. It 
is not improbable that it may equal the total amount which 
will be expended in railway development in the next half 
century, and upon this vast amount which has been ac- 
cumulated in addition to a fair return upon the investment 
railway stockholders will claim a return. Every dollar which 
has thus been added to the value of these properties justifies, 
according to the claim of these defendants, an added net re- 
turn, and it is further claimed that the Constitution of the 
United States protects these defendants in the right to im- 
pose such charges as will yield this return. 

It is evident that until the status of this surplus is de- 
termined by legislative action or judicial interpretation, this 
commission can not properly permit an advance in rates with 
the intent to produce an accumulation of surplus for this 
purpose. 



THE SHERMAN ANTI-TRUST LAW 
[Actor July 2, 1890 (26 Stat. 209) J. 

AN ACT TO PROTECT TRADE AND COMMERCE AGAINST UNLAWFUL 
RESTRAINTS AND MONOPOLIES. 

Be it enacted by the Senate and House of Representatives 
of the United States of Ajnerica in Congress assembled. 

Section 1. Every contract, combination in the form of trust 
or otherwise, or conspiracy, in restraint ol" trade or commerce 
amonir the several States, or with foreign nations, is hereby 
declared illegal. Every person who shall make any such con- 
tract or engage in any such combination or conspiracy, shall be 
deemed guilty of a misdemeanor, and, on conviction thereof, 
shall be punished by fine not exceeding five thousand dollars, 
or by imprisonment not exceeding one year, or by both said 
punishments, in the discretion of the court. 

§ 2. Everj^ person who shall monopolize, or attempt to 
monopolize, or combine or conspire with any other person 
or persons, to monopolize any part of the trade or commerce 
among the several States, or with foreign nations, shall be 
deemed guilty of a misdemeanor, and, on conviction thereof, 
shall be punished by fine not exceeding five thousand dollars, 
or by imprisonment not exceeding one year, or by both said 
punishments, in the discretion of the court. 

§ 3. Every contract, combination in form of trust or 
otherwise, or conspiracy, in restraint of trade or commerce in 
any Territory of the United States or of the District of Co- 
lumbia, or in restraint of trade or commerce between any such 
Territory and another, or between any such Territory or Ter- 
ritories and any State or Stales or the District of ColumI)ia, 

888 



384 THE SHERMAN ANTI-TRUST LAW 

or with foreign nations, or between the District of Columbia, 
and any State or States or foreign nations, is hereby declared 
illegal. Every person who shall make any such contract or 
engage in any such combination or conspiracy, shall be deemed 
guilty of a misdemeanor, and, on conviction thereof, shall be 
punished by fine not exceeding five thousand dollars, or by 
imprisonment not exceeding one year, or by both said punish- 
ments, in the discretion of the court. 

§ 4. The several circuit courts of the United States are 
hereby invested with jurisdiction to prevent and restrain 
violations of this act ; and it shall be the duty of the several 
district attorneys of the United States, in their respective dis- 
tricts, under the direction of the Attorney General, to institute 
proceedings in equity to prevent and restrain such violations. 
Such proceedings may be by way of petition setting forth the 
case and praying that such violation shall be enjoined or 
otherwise prohibited. When the parties complained of shall 
have been duly notified of such petition the court shall proceed, 
as soon as may be, to the hearing and determination of the 
case; and pending such p'etition and before final decree, the 
court may at any time make such temporary restraining order 
or prohibition as shall be deemed just in the premises. 

§ 5. Whenever it shall appear to the court before which 
any proceeding under section four of this act. may be pending, 
that the ends of justice require that other parties should be 
brought before the court, the court may cause them to be sum- 
moned, whether they reside in the district in which the court 
is held or not ; and subpoenas to that end may be served in any 
district by the marshal thereof. 

§ 6. Any property ovsmed under any contract or by any 
combination, or pursuant to any conspiracy (and being the 
subject thereof) mentioned in section one of this act, and 
being in the course of transportation from one State to an- 
other, or to a foreign country, shall be forfeited to the United 
States, and may be seized and condemned by like proceedings 
as those provided by law for the forfeiture, seizure, and con- 



Till': siiKK.MA.N AN ri-'iurs'i" I>A\V 385 

ilcMiuiation of pi-opcrty impdiicd iiilo llic I'nilcd Stairs coii- 
trary to law. 

§ 7. Any person who shall \)v. injured in husinoss or 
property by any other person or corporation by reason of 
anything forbidden or declared to be unlawful by this act, 
may sue therefor in any circuit court of the United States 
in the district in which the defendant resides or is found, 
without respect to the amount in controversy, and shall re- 
cover threefold the damages by him sustained, and the costs 
of suit, including a reasonable attorney's fee. 

§ 8. That the Mord "person," or "persons," where- 
ever used in this act shall be deemed to include corporations 
and associations existing under or authorized by the laws of 
either the United States, or the laws of any of the Territories, 
the laws of any State, or the laws of any foreign countiy. 

[The following are expressly or in effect amendments of "the Sherman 
Anti-trust Law" by addition, though the terms of the original act 
never have been changed. — Ed.] 

1894, Aug. 27. In the tariff act (Wilson Act), sections 73-77 (which 
were expressly preserved in the Dinglcy Act of 1897 when most of 
the Wilson Act was repealed) directed prohibitions and penalties very 
similar to those of the Sherman Act against cases in restraint of trade 
in connection with the importation of goods. 

1903, Feb. 11. "An act to expedite the hearing and determination of 
suits" under the Anti-trust act, and the Interstate Commerce Act, 
by giving precedence to such cases. 

1903, Feb. 25. An appropriation of $500,000 made to be expended 
\inder the direction of the Attorney-General in the employment of 
Bpecial counsel to prosecute suits under the acts of 1890 and 1894 
above mentioned; proviso that immunity is granted to persons for any 
matter concerning which he shall testify in such suits. 

1903, Feb. 14, In an act to establish the Department of Commerce 
and Labor was provided a Bureau of Corporations to gather, compile, 
publish and supply useful information concerning corporations engaged 
in interstate commerce, and with powers of investigation similar to 
those of the Interstate Commerce Commission. 

1906, June 30. An act defining the immunity of witnesses under the 
several acts before mentioned; immunity shall extend only (o a nat- 
ural person testifying under oath. 

L>5 



L-'^.. 



'i'< 



